Czech central bank toughens mortgage rules amid real estate boom


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PRAGUE, Nov. 25 (Reuters) – The Czech National Bank will reintroduce limits on mortgages using new legislative powers and will also increase the countercyclical capital buffer (CCB) rate for banks to counter relaxed conditions in a context of soaring real estate prices.

The central bank said Thursday that mortgage lenders would face limits on debt-to-income (DTI) and debt-to-income (DSTI) ratios for applicants from April 2022.

A loan seeker’s debt to annual income should not exceed 8.5 times, and their monthly debt to income payments should not exceed 45% per rule. Borrowers under 36 face slightly more flexible limits.

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Banks will also not be able to grant loans whose amounts exceed 80% of the value of the property, or 90% for younger borrowers.

The Czech real estate market is booming, as elsewhere in Europe, with young people and low-income people increasingly excluded from the Prague market. The boom is due to the lack of new apartments and more people looking for a second home as an investment.

“During this year, the banking sector as a whole has returned to very relaxed mortgage lending standards,” CNB Governor Jiri Rusnok said. “We consider it necessary to set more stringent parameters for mortgages … The aim is to prevent the vulnerability of the banking sector from worsening.”

The bank estimates that apartment prices are 25% overvalued in the country.

The central bank board also voted to increase the CCB rate for banks by 50 basis points, to 2.00%, effective January 2023. The buffer is used to protect banks during a cycle financial, especially in the context of big changes in lending.

Demand for mortgages remained strong even against a background of rising prices.

The average price of a new apartment in Prague increased 15% year-on-year in the third quarter, to reach 126,409 crowns ($ 5,572) per square meter, according to a regular report from developers Trigema, Skanska and Central Group.

The average mortgage rate has risen 61 basis points since March, reaching 2.54% in October, according to the Fincentrum Hypoindex, which tracks the market. Since June, the central bank has raised its key pension rate by 250 basis points to cope with a spike in inflation.

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Reporting by Robert Muller and Jason Hovet; Editing by Alex Richardson, Bernadette Baum and Timothy Heritage

Our Standards: Thomson Reuters Trust Principles.

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