Slow adoption of mortgages in Czech Republic recalled 20 years later


This year marks the 20th anniversary of the introduction of mortgage loans to the Czech market. Interest rates were very high in the beginning and Czechs were slow to adapt the new financial product. In fact, only 150 mortgages were secured in 1995, Hospodářské noviny wrote on Thursday.

Photo: archive of Radio PraguePhoto: archive of Radio Prague The first mortgages available in the Czech Republic were for 20 years at most. They were for a maximum of 70 percent of the value of a property and the average rate interest rate in the beginning was 13.3 percent, the financial daily said.

Českomoravská hypoteční banka (today Hypoteční banka) was the first financial institution to receive a license to issue mortgages. It was followed by Česká spořitelna, Komerční banka and Vereinsank (now part of UniCredit). Today there 14 such lenders.

Early adapters were evidently quite well off in relative terms. The monthly repayments on a CZK 1 million mortgage at 13.3 percent amounted to CZK 11,930 a month – less than CZK 2,000 more than the average family’s income.

Some clients had even higher payments, with interest rates of up to 17.7 percent recalled by bankers. Incidentally, individuals couldn’t even get mortgages – banks only issued them to families in the early days.

Libor Ostatek, who was involved in the roll-out of mortgages at Českomoravská hypoteční banka, told Hospodářské noviny that unmarried couples were told the only way to secure a mortgage was to get hitched. Most of them did so – we were an effective marriage agency, Mr. Ostatek, now head of Golem Finance, told the newspaper.

Milan Roček today runs a brokerage company named Hyposervis. But in the mid-1990s he himself was among the first wave of mortgage applicants.

Mr. Rocek told Hospodářské noviny that there was only one branch of Česká spořitelna that issued mortgages. It took him eight months to get one, a process that was so lengthy that he had to resubmit some of his documentation as it had become out of date in the interim.

Part of the problem at that time was that there was no register of debtors. What’s more, several family members would often sign up for mortgages together, with each having to provide their own papers.

By the year 2000 the average interest rate had fallen to 8.6 percent, but fewer than 10,000 mortgages had been taken out.

A major change occurred in 2001 when Česká spořitelna launched the first price war in the field. Growing competition among banks led to the introduction of 30-year mortgages, 100-percent loans and lower interest rates.

100-percent loans are no longer given by Czech banks, for which mortgages have become the most lucrative line of business. Over 100,000 people in the Czech Republic now have mortgages and rates have just recently started growing after reaching an all-time low of 2.05 in May and June.