CBA Hypomonitor: New mortgages did not loosen with the new year
Average mortgage rate fell to 4.78 per cent
Prague, 17 February 2025 - In January 2025, banks and building societies granted new mortgages worth CZK 18.7 billion. Compared to December, the activity weakened by 5%, which, however, can be attributed to the seasonal effect of the beginning of the year. The average mortgage rate fell slightly further to 4.78% from 4.8% in December. The year-on-year decline of 0.74% points reduces monthly repayments by around 2% of a mortgage applicant's net income. Conversely, the average mortgage amount rose further in January to 3.92 million kroner, lifting the monthly repayment by around 3% of that income. This increase in January was driven by new mortgages for construction, while the amount of mortgages for the purchase of property was rather stagnant. If mortgages maintain the momentum of the last three months, the volume of new mortgages could reach C$267 billion in 2025, representing a 17% year-on-year increase. This information comes from the CBA Hypomonitor, which captures data from all domestic banks and building societies providing mortgage loans.
Still strong January mortgage origination volume despite seasonal decline
In January, banks and building societies actually granted new mortgage loans worth CZK 18.7 billion, and in addition, clients refinanced their mortgages to the extent of CZK 3.9 billion. Compared to December, mortgage activity thus fell by around 5%, which can, however, be partly attributed to the rather weak seasonal start to each year (this is usually also noticeable in February). On the other hand, after seasonal adjustment, January's new mortgage figures brought an increase (to around CZK 22.8 billion compared to CZK 21.7 billion in the previous three months) and thus reached a level around 33% higher than in the first half of last year. In year-on-year terms, growth in the volume of mortgage originations strengthened to 72% in January from 55% in December and after an 83% year-on-year increase in the previous year.
"The behaviour of households shows how they are following developments in the property market. House and apartment prices accelerated last year, which, with a limited supply of new projects, may continue in 2025. Clients are speeding up their decisions on new homes, as hesitating to buy may become more expensive in the coming months.Therefore, even in the usually weaker January, interest in mortgages continued and sales volumes were decent," says Martin Vašek, CEO and Chairman of the Board of Directors of ČSOB Hypoteční banka.
The volume of refinanced loans (internally or from another institution) fell to CZK 3.9 billion in January. This is 1% below the average 3.9 billion refinanced last year and 81% above the 2.2 billion refinanced in 2023. The share of refinanced loans in total mortgage originations remained essentially unchanged at around 17.3%, close to last year's average of 16.9%. It is thus close to the 17.2% share from 2022-2023, but still below the nearly 29% share from 2020-2021, when households refinanced at a mortgage rate of 2.14%. Whereas in January 2025, households refinanced at a rate of 4.73%, still a significant 0.8% point lower than the 5.5% rate in January 2024.
"Although January traditionally brings a larger seasonal decline in the volume of new mortgages, this year is certainly not the case and we see a promising start to the new mortgage year. The average interest rate has fallen slightly to 4.78%, while the average amount of new mortgage originations continues to rise. Based on the current figures, the first quarter could bring a significant recovery of the market, as people are starting to deal more intensively with the issue of owning their own home and a slight drop in rates may support their decision-making," says Zdeňka Kovářová, Mortgage and Consumer Finance Manager.
Table 1: Summary of mortgage origination volumes and average interest rates for January 2025
|
|
Volume |
Number |
Rate |
|
|
|||
|
Total |
22,6 |
5 957 |
4,77 |
|
New loans |
18,7 |
4 764 |
4,78 |
|
of which: |
|
|
|
|
for purchase |
15,3 |
3 849 |
4,77 |
|
for construction |
2,7 |
649 |
4,73 |
|
Other |
0,8 |
266 |
4,99 |
|
Refinanced from another institution |
3,2 |
979 |
4,71 |
|
Refinanced internally |
0,7 |
214 |
4,80 |
|
Source: CBA Hypomonitor |
|
|
|
The average mortgage rate continues its downward trend
The average rate on new mortgages fell slightly further to 4.78% from 4.8% in December. Its reduction thus confirms a downward trend below the 5% last seen in July 2024. Its January level is thus 0.74% points lower than the 5.54% rate a year ago, reducing monthly mortgage payments by approximately 2% of an applicant's net income. By comparison, the average mortgage rate in 2024 was 5.07% compared to 5.81% in 2023.
Chart 1: Average mortgage rate - new business
Source: CNB, CBA Hypomonitor
Although the Czech National Bank resumed the decline in interest rates in February by lowering them to 3.75%, market rates with longer maturities have been in the same range on average since autumn last year. A number of factors are reflected in them, not only the development of the CNB interest rate, but also a combination of the outlook for inflation, the economy and exchange rate dynamics. For example, the market is currently signalling less than two quarter percentage point cuts in the CNB interest rate over the course of 2025 (i.e. to around 3.4%), following the still strong rise in the Czech consumer price index in January. However, this signalled cut is more than half a percentage point milder than forecast last September. This is due to stronger-than-expected consumer inflation growth in the middle of last year, or stronger wage growth in the economy. And this in an economy that is still expected to recover this year with the labour market still tight rather than loose.
If we assume a scenario of a moderate economic recovery, then structural reforms are needed to bring long-term market rates down to ease inflationary pressures in the economy from the supply side. These would bring the discussion of the hypothetical level of the central bank's neutral interest rate back to 3% from the currently discussed level of 3.5%. At the same time, the development of similar interest rates abroad also plays into this dynamic. The aforementioned market interest rates for longer maturities [1] have recently been volatile and are reacting to a large extent to market expectations linked to the development of US rates. The Czech five-year rate is now around 3.5%, about 0.4 percentage point higher than in September but about 0.2 percentage point lower than at the beginning of January this year. This reflects a fall in euro rates closer to 2.3% from January's rise to 2.5%. On the other hand, US interest rates remain above 4.3%, less than one percentage point above their September level.
[1] These are mainly long-term interest rate swaps (IRS), which reflect the price of money at longer maturities, such as 2 to 10 years.
"The fall in the interest rate has a positive impact on the household budget, but this only partially offsets the impact of the increase in the average mortgage amount, about two-thirds.The overall impact on the net income of the applicant is thus about minus one percent," adds Jaromír Šindel, chief economist at the Czech Banking Association.
Average mortgage size rose further in January due to construction loans
The average size of an actual new mortgage rose slightly to CZK 3.92m in January. CZK, i.e. by almost 2% month-on-month. Its size is thus 15% higher than the CZK 3.41 million in the same period last year. CZK a year ago. January's growth was driven by new mortgages for construction, while the average mortgage to buy a property was rather stagnant. This reflects a combination of higher house prices, wage growth and lower interest rates. Leaving aside the extraordinary value of almost €4m. CZK in August 2024 (the effect of new legislation), the average value has been rising gradually since April and exceeds the previous record level of November 2021 of CZK 3.46m. CZK. The gradual decline in mortgage rates or the continued easing of macroprudential income limits by the CNB, together with the gradual increase in real household incomes, is making it possible to achieve a higher mortgage. Mortgage rates are also linked to the development of property prices, which were roughly 10% higher year-on-year in Q3 last year.
Chart 2: Average amount of new mortgages actually granted by purpose
Source: CNB. CBA Hypomonitor
Impact on the average instalment
The fall in mortgage interest rates so far this year has reduced the monthly repayment on the average new mortgage by around 3%, or 0.8% of the applicant's net income. The scenarios for the evolution of the monthly repayment for different mortgage maturities are shown in Table 2. It shows that a fall in mortgage rates of almost 0.3% points relative to their average rate of 5.07% in 2024 would, for an average mortgage size with a typical repayment period of almost 27 years, reduce the monthly repayment by almost CZK 700 to around CZK 21,7 thousand. CZK. This is a smaller saving than a reduction of more than CZK 2,400 at an interest rate of 5.81% in 2023 for the current value of the average new mortgage. Conversely, when compared to the average 2.8% mortgage rate for new mortgages in 2019, the current refinance mortgage rate of 4.73% raises the monthly payment for an average mortgage by approximately more than 5,600k when the loan term is shortened. The repayment of a mortgage of CZK 1 million with a 30-year maturity at current interest rates is around CZK 5,200.
Table 2: Average monthly mortgage payment by length of repayment and interest rate
|
Average size of new mortgage in CZK: |
|
|
3 924 901 |
||||
|
Average interest rate in %: |
|
2,0 |
3,0 |
4,0 |
4,78 |
5,0 |
6,0 |
|
|
|
|
|
Monthly instalment: |
|||
|
Mortgage maturity in years: |
15 |
25 257 |
27 105 |
29 032 |
30 587 |
31 038 |
33 121 |
|
20 |
19 855 |
21 767 |
23 784 |
25 425 |
25 903 |
28 119 |
|
|
25 |
16 636 |
18 612 |
20 717 |
22 441 |
22 945 |
25 288 |
|
|
|
30 |
14 507 |
16 548 |
18 738 |
20 541 |
21 070 |
23 532 |
|
Source: CBA [2] |
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|
Note: The coloured column corresponds to the interest rate of the latest CBA Hypomonitor, other rates are illustrative |
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[2] The table is available in the xls file attached on the CBA Hypomonitor website
Mortgage market in 2024: record growth of 83%
For the whole year 2024, banks and building societies granted new mortgage loans in the volume of CZK 228 billion. In addition, mortgages were refinanced to the tune of CZK 47 billion, bringing the total mortgage market to CZK 275 billion in 2024 from CZK 150 billion in 2023. If we adjust the volumes for the 4-8% increase in house prices (according to various statistics during Q1-Q3 2024), the volume of new mortgages grew slightly less in real terms. This corresponds to a more modest 53% year-on-year increase in the number of new mortgages in 2024 to almost 62,000 and a nearly 20% increase in the average amount of a new mortgage granted to CZK 3.7 million. Compared to the pre-pandemic years 2017-2019, the volume of new mortgages granted in 2024 was roughly less than a fifth higher.
Chart 2: Annual volume and number of mortgages granted from 2021 to 2024
Source: CBA Hypomonitor
CBA publishes summary statistics for the entire banking market
The Czech Banking Association, in cooperation with its member banks, publishes new aggregate statistics on the housing market. These are mainly the volumes and numbers of newly granted and refinanced mortgages and the respective interest rate. These statistics are published by the CBA in aggregate form for the entire banking sector on a regular basis around the middle of each month. All domestic banks and building societies providing mortgages in the Czech Republic participate in the survey. The data are available from January 2020 in the attached file on the website www.cbaonline.cz, where the relevant statistics can also be found separately for banks and building societies. The above figures are for the sector as a whole, which can also be viewed in a simple graphical form on the cbamonitor.cz website.
Methodology of the CBA Hypomonitor
The CBA Hypomonitor divides mortgage loans granted by banks and building societies to households into several categories in order to distinguish new loans from refinanced or internal refixations. New loans are then reported in categories according to the purpose of the loan:
1. new loans
These are loans whose full volume enters the economy for the first time. This category does not include loan consolidations or loan refinancing. It is divided into three categories:
- Purchase of real estate
- Property construction - including property renovation
- Other new arrangements - only new loans that are in no way related to the purchase or construction of the property, e.g. so-called American mortgages, settlement of a JVM, repayment of the purchase price, settlement of an inheritance share, settlement of a cooperative share, etc.
2. Refinanced loans from another financial institution
These are loans that have been originated by refinancing one or more loans from a financial institution other than the reporting one. Irrespective of the amount refinanced and regardless of the amount of any increase, the total amount of the newly originated loan is reported in this category.
3. Loans increased or internally refinanced
These are loans that were already part of the reporting entity's portfolio in the previous reporting period and have undergone one of the following changes during the reporting period:
- an increase in the agreed amount
- changes such that the original loan has been refinanced/converted into a new loan within the reporting entity. This is a genuinely new contract and not, for example, just a new arrangement in the context of a refixation of an existing contract. Therefore, the volume of such loans in the CBA statistics is lower than 'other new arrangements' in the Czech National Bank statistics.
The following banks and building societies provide data for the CBA Hypomonitor: Air Bank, Banka Creditas, Česká spořitelna, ČSOB, ČSOB Stavební spořitelna, Fio banka, Hypoteční banka, Komerční banka, mBank, Modrá pyramida, MONETA Money Bank, MONETA Stavební spořitelna, Oberbank, Raiffeisen stavební spořitelna, Raiffeisenbank, Stavební spořitelna České spořitelna, UniCredit Bank.