Česká spořitelna, the second biggest player on the Czech mortgage market, is planning to launch a special type of housing loan under which up to 90 percent of the value of a property may be borrowed, the news site iHned.cz reported on Friday. The condition would be that customers be first-time buyers.
A Česká spořitelna survey cited by iHned.cz says that the lack of a lump sum is the main stumbling block to acquiring a housing loan for 41 percent of Czechs aged under 36. It is just this group of potential clients that the bank’s new product is targeted at.
However, 90-percent mortgages are severely restricted by regulations. In accordance with recommendations from the Czech National Bank, which regulates the market, mortgages should not be for 80 percent or more of the value of the apartment or house that guarantees the loan.
Under this set-up, which has been in place for two years, banks can only exceed the 80 percent threshold for some loans; a maximum of 15 percent of the total volume of mortgages they provide can by for up to 90 percent.
Česká spořitelna aims to make use of this provision to target clients who the land register has no record of owning a property. Though the bank aims to target first-time buyers, age is not a criterion.
However, there is one considerable restriction: the maximum amount of such a loan should be CZK 5 million, which in Prague, for instance, would limit buyers to smaller or less central properties.
Other banks have not yet responded to Česká spořitelna’s step, which iHned.cz said came in response to a sharp decline in the market. In the first quarter of 2019 there was an almost 30 percent year-on-year fall-off in the volume of fresh mortgages, the news site said.
The main reason for this downturn is Czech National Bank restrictions. Until last autumn the size of a mortgage was only limited by the price of a property, but now clients’ incomes are also a factor: payments, including interest, may not exceed more than 45 percent of their earnings.
However, mortgage regulations could change markedly in the near future. Last year the central bank and the Ministry of Finance drafted a bill under which the former’s measures would be legally enforceable; at present they are only recommendations, albeit ones that are always heeded, iHned.cz reported.
In response to criticism that the Czech National Bank’s increased powers could limit young people’s access to mortgages, the ministry has pushed for a provision under which conditions for the under 36s would be looser. The government is due to respond to the proposed amendment in the coming weeks, the news site said.