The average mortgage rate rose to 4.9%. The July mortgage figures reveal four main trends. First, both the number and volume of new mortgages have stabilized at lower, but still strong, levels. Second, the rise in actual mortgage rates remains gradual compared to market rates. Third, rates on refinanced mortgages no longer deviated downward as significantly as they did in May and June. And fourth, the likely lower share of investment mortgages contributed to a further decline in the average amount of new mortgages.

The Czech National Bank has published two stress tests over the past two months, which at first glance yielded differing results. In the macro stress test from the June Financial Stability Report, the sector’s capital ratio fell to 15.8%, while in the August supervisory stress test, it rose to 18.4%. However, this is not a contradiction per se, but rather a consequence of their different purposes and methodologies. Both tests confirm that Czech banks would be able to weather even an exceptionally deep recession. Below, I analyze the four key differences between these tests.

The Bank Board left the interest rate unchanged at 3.75%. The projected rise in the interest rate to 4% was apparently not sufficient for the Bank Board, perhaps due to weaker economic growth, the strong koruna, and lower month-over-month core inflation. Added to this is a communication challenge stemming from the essentially weak growth in overall consumer prices. Inflationary risks persist, even in the context of expected stronger, but less inflationary, economic growth.

Stronger industrial growth in June was driven mainly by the energy sector, while auto production stabilized. Exports were a positive surprise, including in key segments (ICT, electronics, and machinery), while higher-priced raw material imports worsened the trade balance. Activity in the construction sector remains weak, but the number of completed apartments in Prague and new construction starts across the Czech Republic increased, despite the continued low number of building permits. However, strong growth in industrial wages does not give the CNB much room to ease policy.

While the acceleration in consumer price growth to 1.7% in July was likely accompanied by a return of demand-driven core inflation to 2.9%, this signals a further slight slowdown in its monthly momentum. Furthermore, retail sales declined slightly in June. This combination gives the central bank room to keep interest rates at the current level of 3.75%. However, core inflation remains above the central bank’s inflation target, which will keep it vigilant and open to another interest rate hike to 4%. This is especially true if August consumer prices continue the stronger momentum seen in July.

The CNB is likely to keep the two-week repo rate at 3.75% in August. However, the ECB’s wait-and-see approach is not a definitive guide for Czech monetary policy: domestic core inflation, the labor market, and lending activity are having a more inflationary effect. However, it is not just mortgages that are driving Czech lending; there is also a noticeable recovery in investment loans, which could ease inflationary pressures on the supply side. If service prices start rising again in July and August, the Bank Board may raise the rate to 4% on September 17. Markets are pricing in interest rate hikes by both the CNB and the ECB this fall.

The brisk pace of lending activity continues, and payment behavior is very good

Although confidence in the Czech economy improved only slightly in July, it did so for the second month in a row, confirming its resilience despite heightened geopolitical uncertainty. Positive signals are coming mainly from the industrial sector, where assessments of demand and capacity utilization are improving, as well as from employment expectations. At the same time, declining price expectations are easing the CNB’s concerns about persistent inflationary pressures; however, the return of higher oil prices does not yet give the central bank a reason to deviate from its rather hawkish communication.

The CNB’s survey of banks’ lending conditions for the second quarter came as no surprise; the most significant change concerned housing loans. The central bank’s stricter criteria for investment mortgages tightened not only the banks’ lending requirements. In line with historical experience, this supported demand, likely temporarily. The impact on lending conditions was partially offset by lower bank margins and more favorable repayment terms. In an environment of continued strong competition, the stronger demand helped mitigate the impact of the spike in market interest rates on mortgage rates, which consequently rose more modestly. However, expectations of weaker demand for housing loans in the third quarter are changing this narrative. Surveys on consumer and business loans are also likely to keep the CNB’s outlook on the hawkish side.

The average interest rate on new mortgages rose to 4.79%, while the average mortgage amount fell back below 4.7 million crowns. Banks and building societies issued new mortgages (excluding refinancing) totaling 36.5 billion crowns. After months of exceptionally strong mortgage activity, June saw a clear return to the robust normal levels seen in the second half of last year. In the first half of the year, the volume of new mortgages reached 216 billion crowns, which is 66 billion more than last year. Higher market interest rates and expensive real estate remain the main obstacles.

Commentary by Miroslav Zámečník, Chief Advisor to the Czech Banking Association

The Czech household savings rate remained at 20% in the first quarter of this year, still high even by international standards. Household disposable income slowed to 0.7% quarter on quarter, while property prices continued to rise by roughly 2%. The GDP revision showed weaker household consumption, but also a less negative productivity story thanks to stronger value added in industry. However, despite somewhat more moderate growth in the past, unit labour costs remain on a strong upward trend, which, together with high core inflation growth, is unlikely to bring a dovish turn at the CNB. That said, my interpretation of the new data from the Czech Statistical Office, especially for the first quarter, is significantly affected by the alignment of quarterly figures with the new annual data for 2025. The next quarterly release may therefore bring yet another story about the economy in the first quarter.

Economic confidence improved slightly in June. Stronger sentiment among households and manufacturers outweighed continued weakness in retail trade, although retail conditions may improve over the coming months. At the same time, the services sector points to higher risks for both unemployment and core inflation—that is, inflation excluding the volatile prices of energy and food. For the Czech National Bank (CNB), the June sentiment survey suggests a need for caution, reflecting stronger household demand and a renewed rise in price expectations in services.

The Bank Board raised the interest rate by a quarter of a percentage point to 3.75%. Unsurprisingly, the main reason was the continued high growth in demand-driven, or “core,” inflation, which reflects stronger wage growth. However, the decision also reflects stronger credit growth and rising real estate prices. I view today’s decision as an effort by the central bank to keep consumer inflation in line with its inflation target over the longer term, which is not possible with core inflation hovering around 3%. Today’s decision reduces the risk premium—or rather, the uncertainty regarding the credibility of achieving the inflation target and the central bank’s independence. Below, I discuss further possible steps and their implications for the economy and the banking sector. If energy prices remain lower, this will reduce the likelihood of the CNB reaching a 4% interest rate. However, core inflation must lose momentum for the CNB to avoid reaching that level.

While the growth in actual apartment prices slowed to approximately 2.5% quarter-over-quarter in the first quarter, with significantly different trends between Prague and the rest of the country, However, even the current milder growth does not yet suggest a significant slowdown in year-over-year apartment price growth this year. Asking prices do not indicate this yet. This is especially true if there is a shift of pent-up demand for more expensive Prague apartments to the regions. Data from Flat Zone show an average transaction price of CZK 98,000 per square meter for apartments in the first quarter. Stricter criteria for so-called investment mortgages, as well as higher mortgage interest rates, may further cool the real estate market; however, higher wage growth keeps real mortgage interest rates negative.

In May 2026, banks and building societies actually issued new mortgages (excluding refinancing) totaling CZK 38.1 billion.