CBA Hypomonitor: Mortgage market continued to grow in February, average rate is the lowest since June 2022

Prague, 14 March 2024 - Banks and building societies granted mortgage loans worth CZK 15.8 billion in February this year. Month-on-month, the volume of mortgages granted increased by more than 20% compared to January. However, an increase in February activity on the mortgage market compared to January is normal, but even after taking into account this seasonal effect, this year's month-on-month increase was almost 10%. From a year-on-year perspective, the volume of mortgages granted in February was similarly double that of the previous month, which is mainly related to the still low comparative base of the beginning of last year. The average mortgage rate for new loans accelerated its decline in February, falling from 5.54% to 5.36%, the lowest level since June 2022. The 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 provided mortgages increased in February compared to January, even beyond normal seasonality

According to the CBA Hypomonitor, banks and building societies granted mortgages to households in February in the volume of CZK 15.8 billion. The volume of mortgages granted thus increased by 21% month-on-month. After taking into account the traditional seasonality, the month-on-month increase was more moderate, but still reached less than 10%, which confirms the continued recovery of the mortgage market after its freeze in the second half of 2022. From a year-on-year perspective, the impact of a lower comparative base continues to be evident, with the data being compared to the still relatively weak start of last year. As a result, mortgage volumes in year-on-year terms rose by 100% in February. Despite the visually very strong year-on-year growth of recent months, mortgage volumes remain weaker compared to before the interest rate rise and, for example, a quarter lower than in February 2020.

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

	Objem (mld. Kč)	Počet	Sazba (%)
	Objem (mld. Kč)	Počet	Sazba (%)
Total	15,8	4 885	5,35
New loans	13,0	3 847	5,36
of which:
at buy	10,6	3 038	5,35
at construction	1,7	572	5,34
other	0,7	237	5,61
Refinanced from another institution	2,3	853	5,27
Refinanced internally	0,5	185	5,40
Source: CBA Hypomonitor

"Given the development of inflation and interest rates in the market, we can expect a continued decline in mortgage rates, which will increase interest in mortgages. At the same time, we anticipate that the mortgage market may be revived at the end of the second quarter by the impending effective date of the Mortgage Credit Act, which will apply to new and refixed loans. Loans will also become more affordable for clients thanks to the relaxation of the DTI and DSTI indicators," says Soňa Holíková, mBank's Mortgage Loan Manager.

The volume of actual new mortgages granted without refinancing reached CZK 13 billion in February after CZK 10.9 billion in January. This represents a month-on-month increase of CZK 2.1 billion, i.e. 20%. The volume of refinanced loans (internally or from another institution) amounted to CZK 2.8 billion compared to CZK 2.1 billion a month earlier. The share of refinanced loans in the total volume of mortgages granted was 17.5% in February, which is only slightly above the average of last year (17.2%). The number of newly granted mortgages reached 3 850 in February, which represents a 20% month-on-month and 68% year-on-year increase. However, compared to February 2020, the number of mortgages is 37% lower. The average monthly number of new mortgages was around 6.7 thousand in 2020 and reached 9.5 thousand in the exceptionally strong year of 2021;

"Building societies continue their strategic cooperation with the State Environmental Fund. The subsidy counselling launched in January is now complemented by a discounted loan for the Repair Grandma's House programme. Thanks to this, we expect interest in loans for energy-efficient housing to grow significantly in the coming months," says Libor Vošický, Chairman of the Board of Directors of Stavební spořitelna Česká spořitelna.

The average mortgage rate has accelerated its decline significantly and is the lowest since June 2022

The interest rate on newly granted mortgage loans has fallen further from 5.54% in January to 5.36%, the month-on-month decline of almost 0.2 percentage point being the most significant so far since the rate cuts began last year. This development is attributable to a faster decline in market interest rates, which in recent months have reached their lowest levels since the turn of 2021 and 2022 due to rising expectations of a rate cut by central banks. However, despite these developments, mortgage rates remain above average in the context of the last two decades. Realised interest rates, as opposed to bid prices, reflect the actual real interest rate on signed mortgage contracts. Offering rates have also fallen noticeably below 6% as a result of recent developments in market interest rates, and in limited cases offers below 5% have also been made.

"Interest rates for longer maturities have fallen markedly in recent months, reaching their lowest level since the turn of 2021 and 2022.This development was related to market expectations of a faster decline in rates of the main central banks, including the CNB. This development opens up room for a faster decline in mortgage rates, which is already indicated by the February figures from the mortgage market, when the realised average rate for closed contracts fell month-on-month at the fastest pace since the beginning of last year," says Jakub Seidler, chief economist at the Czech Banking Association.

Chart 1: Average mortgage rate - new business

Mortgage rates are reacting with a lag of several months mainly to the development 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 fell slightly further in February, reaching their lowest level since the turn of 2021 and 2022, due to developments abroad and market expectations of further rate cuts by the CNB.

Average mortgage size fell slightly in February, still among the highest in 2 years

Average mortgage size fell slightly in February, from 3.41 to 3.38mn. However, it is still among the highest in the last two years. The highest average mortgage amount 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 last year at CZK 2.83 million. Table 2 shows the scenarios of the development of the monthly payment for different mortgage maturity periods. 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] The payment for a mortgage of CZK 1 million with a 30-year maturity at current interest rates is around CZK 5,600.

[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:				3 383 729
Average interest rate in %:		2,0	3,0	4,0	5,00	5,36	7,0
				Monthly instalment:
Mortgage maturity in years:	15	21 775	23 367	25 029	26 758	27 399	30 414
	20	17 118	18 766	20 505	22 331	23 011	26 234
	25	14 342	16 046	17 861	19 781	20 499	23 915
	30	12 507	14 266	16 154	18 165	18 918	22 512
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 2023

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.

CBA Hypomonitor: Mortgage market strengthened in February, average rate is lowest since June 2022