CBA Hypomonitor: Mortgage activity strengthened further in July
The average rate increased slightly to 5.07 percent
Prague, 13 August 2024 - Banks and building societies granted mortgage loans worth CZK 23.8 billion in July this year, of which CZK 19.6 billion were actually new loans. Compared to June, mortgage activity declined slightly, but this is a traditional development for July and, after taking it into account, the month-on-month activity would be higher. In annual terms, growth accelerated from 80% in June to almost 110%, which also illustrates the favourable development in July. The mortgage market is thus continuing to recover this year, with origination volumes already above 2020 levels in recent months. The average mortgage rate for new loans has risen slightly from 5.05% to 5.07% for the first time this year. However, the evolution of market interest rates is likely to reopen the scope for a future decline. The average mortgage size increased further to EUR 3.77 million. CZK. Due to a correction of the reported data by a major bank, the figures have been revised since February this year. This information is based on data from the CBA Hypomonitor, which captures data from all domestic banks and building societies providing mortgage loans.
The volume of mortgages granted in July fell slightly month-on-month
Banks and building societies granted mortgages to households in the volume of CZK 23.8 billion in July, according to CBA Hypomonitor. However, July activity on the mortgage market usually declines at a double-digit rate compared to June, so from this perspective this July's decline was more moderate. July's mortgage origination volumes thus remain favourable despite the month-on-month slowdown, confirming that the recovery in mortgage activity continues this year. This is evidenced by the year-on-year growth, which accelerated from 80% in June to 109%. [1]
[1] Data from February through June of this year was revised with the July edition of the CBA Hypomonitor due to a correction to the numbers by a major bank. Thus, the figures for the number and volume of mortgages originated have been inflated, with the more significant inflations relating mainly to the June and May figures. With the increase in the market share of the institution in question, the average interest rate on newly granted mortgages has also decreased slightly for June, from 5.06% to 5.05%.
"The situation in the mortgage market is clearly influenced by year-on-year better rates, deferred client demand and renewed growth in prices of flats and houses, the supply of which is not very wide, so quality properties are selling quickly. A positive trend is the growing share of mortgages for financing low-energy projects, where a significant share of young people under 36 is among the clients," says Martin Vašek, CEO and Chairman of the Board of Directors of ČSOB Hypoteční banka.
Table 1: Summary of mortgage origination volume and average interest rates for July 2024
|
|
volume |
Number |
|
|
|
|||
|
Total |
23.8 |
6,493 |
5.06 |
|
New
credits |
19.6 |
5,204 |
5.07 |
|
from
of which: |
|
|
|
|
on
purchase |
15.4 |
4,017 |
5.05 |
|
on
construction |
3.3 |
893 |
5.07 |
|
other |
1.0 |
294 |
5.26 |
|
Refunded
from another institution |
3.3 |
1,022 |
5.04 |
|
Refunded
Internally |
0.8 |
267 |
5.09 |
|
|
|
|
|
The volume of actual new mortgages granted without refinancing reached CZK 19.6 billion in July. Month-on-month, the volume decreased by 6.5%. The volume of refinanced loans (internally or from another institution) amounted to CZK 4 billion, the same as in May. The share of refinanced loans in total mortgage originations was 17.4% in July, slightly above the annual average of 16%.The number of new mortgages originated reached 5,204, an 8% month-on-month decline, but above the annual average of 4,774 mortgages per month.
"The summer season and holidays have in recent years been associated with interest in investing in holiday properties abroad. According to our data, this trend has further intensified this year, and some clients are also using the possibility of using foreign property as collateral for the purchase of real estate in selected neighbouring countries, which further facilitates the situation and also shows how the domestic mortgage market is gradually adapting to the requirements of clients," Filip Vavruska, director of Oberbank Czech Republic, says.
Average mortgage rate rises slightly
The interest rate on actual new mortgage loans rose cosmetically to 5.07% from 5.05% in June, the first slight increase in the average rate since May last year. Realised interest rates, as opposed to offer prices, reflect the actual real interest rate on signed mortgage contracts.
Graph 1: Average Mortgage Rate - New Business
Mortgage rates react with a lag of several months, mainly to developments in market interest rates for longer maturities. They are influenced by a number of factors - not only the expected development of CNB base rates, but also the outlook for inflation, economic developments and the dynamics of similar interest rates abroad. The aforementioned market interest rates for longer maturities [2] have started to rise again since March of this year after a gradual and fluctuating decline. However, this trend reversed during June and intensified in recent weeks, when the markets began to bet again on a faster decline in Fed funds rates. As a result, domestic longer-dated rates are now at their lowest levels this year and at their lowest levels since late 2021/early 2022.Compared to last month, they are roughly 0.25 percentage point lower and below the average for this year.
[2] These are primarily long-dated interest rate swaps (IRS), which reflect the price of money at longer maturities, such as 2 to 10 years.
"The evolution of market rates for longer maturities in recent weeks is once again opening up room for mortgage rates to fall, which have stalled in recent months. The market's bets on a faster decline in Fed funds rates has also led to a more significant cut in domestic market rates, which are now among the lowest this year and at the lowest levels since the turn of 2021 and 2022," says Jakub Seidler, chief economist at the Czech Banking Association.
Average mortgage size is gradually increasing
The average mortgage size continued to increase in July, from 3.72 to 3.77 million. CZK. Since April, the average mortgage amount has thus exceeded the previous record level set in November 2021 of CZK 3.46m. The gradual decline in mortgage rates or the relaxation of macroprudential income limits by the CNB, together with a gradual increase in real household incomes, is making it possible to achieve a higher mortgage. The mortgage rate is also related to the evolution of house prices, which were almost 10% higher in Q1 this year than in the last quarter of 2021.
Table 2 shows the scenarios of the evolution of the monthly payment for different mortgage maturities. It shows that an increase in mortgage rates by one percentage point means an increase in the monthly payment of approximately CZK 1,500 to CZK 2,000 for an average mortgage size. Compared to the 2% interest rate that was common on the market in earlier years, the current mortgage rate means an increase in the monthly payment for an average mortgage of approximately CZK 6,000. [3] A mortgage payment of CZK 1 million with a 30-year maturity at current interest rates is around CZK 5,500.
[3] The table is available in the xls file attached on the CBA Hypomonitor website
Table 2: Average monthly mortgage payment by length of term and interest rate
|
Average new mortgage size in £: |
|
|
|
||||
|
Average interest rate in %: |
|
2.0 |
3.0 |
4.0 |
5.07 |
6.0 |
7.0 |
|
|
|
|
|
Monthly installment: |
|||
|
Mortgage term in years: |
15 |
24,068 |
25,828 |
27,665 |
29,962 |
31,561 |
33,617 |
|
20 |
18,920 |
20,742 |
22,664 |
25,035 |
26,795 |
28,997 |
|
|
25 |
15,852 |
17,736 |
19,741 |
22,200 |
24 097 |
26,434 |
|
|
|
30 |
13,824 |
15,768 |
17,856 |
20 405 |
22,424 |
24,883 |
|
|
|||||||
|
Note: the color bar corresponds to the interest rate of the last CBA
Hypomonitor, other rates are illustrative |
|||||||
For the full year 2023, activity in the mortgage market fell by a quarter
For the full year 2023, banks and building societies granted mortgage loans in the volume of CZK 150 billion, of which net new loans without refinancing amounted to CZK 124 billion. This was a 24% year-on-year decline. This is mainly due to the fact that the first half of 2022 was still strong in terms of mortgage originations and the higher comparative base from this period is thus affecting the year-on-year comparison. As a result, there were 50% fewer mortgages originated year-on-year in the first half of 2023 and over 50% more in the second half of 2023. Compared to the pre-pandemic years 2017-2019, the volume of mortgages originated in 2023 was roughly one-third lower.
Figure 2: Full-year volume and number of mortgages originated from 2021 to 2023
Source: CBA Hypomonitor
CBA publishes summary statistics for the entire banking market
The Czech Banking Association publishes new summary statistics from the housing market in cooperation with its member banks. These are mainly volumes and numbers of new 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 mid-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 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 simple graphical form on cbamonitor.cz.
CBA Hypomonitor Methodology
The CBA Hypomonitor breaks down the mortgage lending of banks and building societies to households into several categories to distinguish new loans from refinanced or internal refixes. New loans are then reported in categories according to the purpose of the loan:
1. New loans
These are loans whose entire volume enters the economy for the first time. This category does not include loan consolidation or loan refinancing. They fall into three categories:
- Buying real estate
- Real Estate Development - including property renovation
- Other New Arrangements - only new loans that are in no way related to the purchase or development of real estate, e.g. so-called. American mortgages, settlement of a JJM, reimbursement 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. Regardless 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. Increased or internally refinanced loans
These are loans that were already part of the reporting entity's portfolio in the previous reporting period and have experienced any of the following changes during the reporting period:
- increase in the agreed amount
- there have been changes such that the original loan has been refinanced/transferred to 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 compared to "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.