CBA Hypomonitor: interest rate fell to 5.54%

Prague, 14 February 2024 - Banks and building societies granted mortgage loans worth CZK 13 billion in January this year. Although the volume of mortgages granted fell by 14% month-on-month compared to December, January is traditionally a weaker month in terms of activity on the mortgage market and after taking into account the aforementioned seasonality, the month-on-month decline would be only slight. From a year-on-year perspective, the volume of mortgage originations in January was almost double that of the previous month, which is mainly related to the still low comparative base of the beginning of last year. For the time being, the mortgage market is expected to continue its recovery this year, which started slightly last year in the context of high interest rates. The average mortgage rate accelerated its decline in January, falling from 5.65% to 5.54%, which remains the lowest level since mid-2022. The information is based on data from the CBA Hypomonitor, which captures data from all domestic banks and building societies providing mortgage loans.

According to the CBA Hypomonitor, banks and building societies granted mortgages to households in January this year in the volume of CZK 13 billion. However, January and February are usually the weakest months of the year in terms of mortgages granted and the double-digit month-on-month drop in the volume of mortgages granted in January is not exceptional from this perspective. From a year-on-year perspective, the effect of a lower comparative base is apparent, with the data being compared with a still relatively weak start to last year. Thus, in year-on-year terms, mortgage volumes rose by 99% in January. Despite the visually very strong year-on-year growth of recent months, mortgage volumes remain weak compared to the period before the interest rate rise and a third lower than in January 2020.

"January is generally a weaker month on the mortgage market, but as we expected, we have seen a significant month-on-month recovery in interest in buying or renovating properties. This trend is also helped by a gradual decline in interest rates. Clients are interested in shorter loan terms, both for new contracts and for refinancing. It is obvious that they expect further rate cuts," said Martin Vašek, CEO and Chairman of the Board of Directors of ČSOB Hypoteční banka.

The volume of actual new mortgages granted without refinancing reached CZK 10.9 billion in January after CZK 12.7 billion in December. This represents a month-on-month decline of 14.3%. The volume of refinanced loans (internally or from another institution) amounted to CZK 2.1 billion compared to CZK 2.4 billion a month earlier. The number of newly granted mortgages reached 3,190 in January, representing a 15% month-on-month decline and a 68% year-on-year increase. This is the lowest figure since July before last year, but this is related to the traditionally weaker January. Compared to January 2020, the value is 45% lower. By comparison, the average monthly number of new mortgages was around 6.7k in 2020 and 9.5k in the exceptionally strong year of 2021;

"Interest rates have been falling for several months in a row, but the January decline is the largest month-on-month decline so far and we expect the rate cuts to continue throughout this year. We have seen two main trends in the mortgage market in recent months. The first is increased demand for shorter interest rate fixings, particularly for 1-3 years. The second is a greater interest in financing energy-efficient housing," said Ondřej Šuchman, mortgage manager at Komerční banka.

Table 1: Summary of mortgage origination volumes and average interest rates for January 2024

	Volume (bn CZK)	Number	Rate (%)
	Volume (bn CZK)	Number	Rate (%)
Total	13,0	3 946	5,53
New loans	10,9	3 190	5,54
of which:
at buy	9,0	2 542	5,51
at construction	1,3	445	5,55
other	0,6	203	5,83
Refinanced from another institution	1,8	626	5,49
Refinanced internally	0,3	130	5,60
Source: CBA Hypomonitor

The average mortgage rate accelerated its decline at the beginning of the year

The interest rate on newly granted mortgage loans fell further from 5.65% in December to 5.54% and thus remains the lowest since July before last year. The month-on-month decline in the average rate of more than a tenth of a percent was the strongest so far since mortgage rates began to fall early last year. This development is attributed to a faster decline in market interest rates, which have reached their lowest levels since late 2021 and early 2022 on expectations of faster rate cuts by central banks. However, despite these developments, mortgage rates remain above average over the last two decades and among the highest since 2008-2009. Realized interest rates, as opposed to bid prices, reflect the actual real interest rate on signed mortgage contracts. Offering rates have also already fallen below the 6% threshold as a result of market interest rate developments, with limited offers below the 5% threshold.

"Interest rates for longer maturities have been gradually declining and their decline has accelerated in the past three months in the context of stronger expectations of a rate cut by the major central banks, including the CNB. This development foreshadows a gradual decline in mortgage rates, which has already been reflected in a more pronounced decline in some offer rates on the market and has also led to an acceleration in the decline in the average rate on closed contracts in January," says Jakub Seidler, chief economist at the Czech Banking Association.

Chart 1: Average mortgage rate - new business

Mortgage rates reacted with a slight lag mainly to the evolution of 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 inflation outlook, economic developments and the dynamics of similar interest rates abroad. The aforementioned market interest rates for longer maturities [1] have started to decline since last October due to higher market expectations of rate cuts by major central banks. As a result, domestic market interest rates reached their lowest level since late 2021/early 2022 in January, due to developments abroad and market expectations of rate cuts by the CNB.

Average mortgage size rose further in January

The average mortgage size continued to rise in January, increasing from 3.37 to 3.41mn. The mortgage rate increased from CZK 1.5 to CZK 1.5. This is the highest value in two years. The highest average mortgage was reached in November 2021 and amounted to CZK 3.46 million. Since then it has gradually decreased and reached its lowest level in January this year at CZK 2.83 million. Table 2 shows the scenarios of the evolution of the monthly payment for different mortgage maturities. It shows that a rise in mortgage rates by one percentage point means an increase in the monthly instalment 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. [2] [2]A mortgage payment of CZK 1 million with a 30-year maturity at current interest rates is around CZK 5,700.[1] These are mainly long term interest rate swaps (IRS), which reflect the price of money in longer maturities, for example 5 to 10 years.[2] The table is available in the xls file attached on the CBA Hypomonitor website

Table 2: Average monthly mortgage payment by length of repayment and interest rate

Average size of new mortgage in CZK:				3 412 422
Average interest rate in %:		2,0	3,0	4,0	5,00	5,54	7,0
				Monthly instalment:
Mortgage maturity in years:	15	21 959	23 566	25 241	26 985	27 947	30 672
	20	17 263	18 925	20 679	22 520	23 542	26 456
	25	14 464	16 182	18 012	19 949	21 028	24 118
	30	12 613	14 387	16 291	18 319	19 452	22 703
Source: CBA
Note: the coloured column corresponds to the interest rate of the last CBA Hypomonitor, other rates are illustrative

Mortgage market activity fell by a quarter in the whole year 2023

In the whole 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 year-on-year decline of 24%. 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 granted in 2023 was roughly one-third lower;

Chart 2: Annual volume and number of mortgages granted between 2021 and 2023Source: CBA Hypomonitor

CBA publishes new aggregate statistics for the entire banking market

The Czech Banking Association publishes new aggregate statistics from the housing market in cooperation with its member banks. 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 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 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 property
Construction of property - including renovation of property
Other new arrangements - only new loans that are not related to the purchase or construction of property, e.g. US mortgages, settlement of cohabitation, repayment of purchase price, settlement of inheritance share, settlement of cooperative share, etc.

2. Refinanced loans from another financial institution

Are loans that are the result of refinancing one or more loans from a financial institution other than the reporting financial institution. Irrespective of the amount refinanced and irrespective 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

There are loans that were already part of the reporting entity's portfolio in the previous reporting period, and during the reporting period, any of the following changes occurred to them:

increase in the agreed amount
there were such changes that the original loan was refinanced/transferred to a new loan within the reporting entity. This is a truly new contract, not, for example, just a new arrangement within the refixation of an existing contract. Therefore, the volume of such loans in the CBA statistics is lower compared to "other new arrangements" in the statistics of the Czech National Bank.

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.