Total Volume of Mortgages Set For Record Year In 2021 Despite Rising Mortgage Interest Rates
According to mortgage specialist Fincentrum Hypoindex, the growth of the average mortgage interest rate accelerated in July. The monthly volume of mortgage agreements has begun to slow down, but 2021 is already guaranteed to be a record year for the total value of concluded mortgages. Photo Credit: SM / BD.
Czech Rep., Aug 19 (BD) – According to mortgage research specialist Fincentrum Hypoindex, the growth of the average mortgage interest rate accelerated in July. Although the same figures suggest that the monthly volume of mortgage agreements has begun to slow down, the total value of mortgages concluded this year has already surpassed last year’s total, which was itself an all-time high.
The average mortgage interest rate increased by 10 basis points in July, to 2.23%, according to the Fincentrum Hypoindex indicator, the largest monthly increase since December 2018. Due to recent delays in processing mortgage applications with lower rates, the growth of the average mortgage rate may accelerate even more.
The Czech National Bank (CNB) has raised key interest rates twice this year. In June, the base rate rose by 0.25 percentage points, and central bankers decided in August to increase it by the same amount again to 0.75%.
“The rising base rate from the CNB is already reflected in the higher average interest rate. With a further increase in these rates in August, mortgage rates can be expected to continue to rise and gradually approach the 3% p.a. mark,” said Jiří Sýkora, a specialist in product management at Fincentrum & Swiss Life Select.
At the August meeting, a majority of the CNB board agreed on the need to continue tightening monetary policy, mainly due to higher inflation. The base rate could thus be doubled by the end of the year, in September and November.
According to Sýkora, the effect of the rising interest rates can be seen in the slight fall in the total volume of mortgages agreed in July, when banks arranged 10,967 mortgages totaling CZK 35.261 billion, almost CZK 9.5 billion lower than March’s record and more than CZK 9.2 billion from June. However, this is still considerably higher than previous years, and as banks process the backlog of mortgage applications, any decline is expected to be slow.
Overall, year-on-year, the volume of agreed mortgages has increased by more than 60%, and the number by almost 40%. The average value of a mortgage increased by more than CZK 54,000 to CZK 3,215,153 in July. Over the last year, the average mortgage has increased by almost half a million crowns, with no indicators that this growth shows any sign of slowing, and according to Sýkora may hit CZK 3.5 million within a few months.
Despite the slightly lower volume of mortgages agreed in July, it is guaranteed that this year will see a higher total value of mortgages than ever before. In the first seven months of the year, banks have already arranged mortgages worth CZK 259.047 billion, surpassing last year’s record of CZK 254.023 billion (for the whole 12 months).
At current trends, it is possible that the total volume of mortgages agreed could reach CZK 300 billion, even if the monthly total keeps declining for the rest of the year.