The prices of mortgage loans practically stagnated for the next month in a row. The average offer rate of mortgage loans according to the Swiss Life Hypoindex was 5.32 percent in the first week of November.
“The rate only fell by two basis points. The index recorded a smaller month-on-month decrease only in June this year, when its value decreased by one basis point,” says Jiří Sýkora, a mortgage analyst at Swiss Life Select, adding that it continues to be confirmed that nothing forces the banks to significantly lower rates.
Therefore, with stagnation, the calculation of the monthly mortgage loan payment does not change. In the case of a specific loan for 3.5 million crowns negotiated up to 80 percent of the estimated real estate price (LTV) with a maturity of 25 years and an average offer rate of 5.32 percent, it amounted to 21,116 crowns in November. In October, at an average offer rate of 5.34 percent, it was in the amount of 21,155 crowns – it therefore fell by only 39 crowns month-on-month.
Since the beginning of the year, the monthly installment has decreased by almost 1,400 crowns on average, because in January the monthly installment was 22,472 CZK. Even that shows how little rates have changed this year.
A more significant drop in rates will not come this year
According to Jiří Sýkora, the reason for the stagnation may be that the banks have already fulfilled this year’s plans in terms of granted loans or that they are covering losses from the period when rates were below two percent with increased margins.
“A significant reduction in mortgage rates cannot be expected before the beginning of next year. In the worst case, only as part of the spring promotional offers, which are supposed to stimulate the mortgage market after the winter break every year,” said Sýkora.
Mortgage offers with lower rates have already appeared on the market, but this change is not yet sufficient to have a significant impact on the overall trend. Unless one of the biggest players in the mortgage market decides to significantly reduce rates and stir up competition, major changes will not occur.
According to Tom Kadeřábek, the head of the product department of Swiss Life Select, banks are not rushing into discounting now, because they would “cannibalize” older loans with higher rates with lower rates.
These clients would logically request early refinancing at a lower rate, which would mean a loss for the bank.
“Currently, thanks to higher margins, banks create reserves in case of early repayments and thus pass the costs on to clients. The situation was not improved even by the new legislation, which allows banks to apply a slightly higher fee for early repayment,” added Kadeřábek.
According to experts in the field of mortgage loans, this fee is not nearly enough for banks, moreover, it only applies to new contracts concluded after September 1 of this year.
According to Broker Trust mortgage expert Libor Ostatek, banks are now pricing the risk of early exit for individual mortgages by roughly 0.3 to 0.5 percent higher.
“If the bank should really charge a loss, it could be hundreds of thousands of crowns for the client,” added the Broker Trust expert.
The Comedy of Mortgage Stagnation: Can We Get a Break Here?
Ah, mortgage rates! The only thing more fickle than a cat on a hot tin roof—or shall I say, a politician at a promise-keeping convention? This month, we find ourselves once again in a gripping saga of stagnation—yes, it’s like watching paint dry, but with slightly more paperwork.
The Latest Rates: Stagnation Station
In the first week of November, the average offer rate for mortgage loans, as reported by the Swiss Life Hypoindex, rests at a fine 5.32 percent. That’s right, folks, only a two basis point drop! Is it just me, or does this feel like a Netflix series that just won’t end? And to think, in June, we had a dramatic decrease of one whole basis point. Hold onto your chairs, this financial thriller is heating up!
Jiří Sýkora, our mortgage maestro, explains that the banks have pretty much decided “meh, why change a thing?” It’s as if they’re all playing poker, showing no signs of weakness. No flushes here, my friends!
Let’s do some quick math. If you were to snag yourself a loan of 3.5 million crowns over a 25-year maturity at that snazzy average rate, expect to cough up approximately 21,116 crowns per month. Just to make sure we’re all on the same page, that’s down a whopping 39 crowns from October! That’s like finding a penny under your couch cushions—exciting, but let’s not quit our day jobs.
A Swifter Slide? Don’t Get Your Hopes Up!
So, what’s behind the banks’ reluctance to lower those rates? Well, Jiří Sýkora hypothesizes that they’re simply stuffed to the brim with this year’s loan quotas. It’s as if they’ve all collectively agreed to take a long winter’s nap, only to wake up when the spring promotions roll around. My guess is they’ll use that time to perfect their latte art!
Now, brace yourselves for a plot twist: some banks are actually offering lower rates, but they’re about as impactful as a wet blanket at a bonfire party. Unless one of the big players decides to throw a rate party, we may be stuck in this collective limbo longer than we’d like.
And don’t you just love Tom Kadeřábek’s insight? According to him, banks are on a tightrope—lower their rates, and they risk “cannibalizing” older loans. It’s like the banking version of sibling rivalry. No one wants to give up their favorite toy!
To add to the drama, we’ve got legislation coming into play that allows banks to impose higher fees for early repayment. This has all the excitement of a treadmill—lots of movement, but ultimately, you’re still in the same spot. So if you think ducks are the only ones quacking about losses, think again! Some clients could end up facing hundreds of thousands of crowns in losses if they try to escape early. Talk about a commitment!
Let’s wrap this up before we fall asleep at the wheel. The mortgage market is as lively as a Monday morning meeting: lots of talk, very few changes, and a whole lot of yawning. So, unless something enters the scene like a rock star with a guitar—ready to strum us away from the malaise—we’re in for a quiet stretch ahead.
So, hang tight, check your couch cushions for those pennies, and prepare your heart for some cheerful rate updates—next year.
The prices of mortgage loans have largely remained unchanged for nearly a month, marking a period of stability in the housing finance sector. As recorded by the Swiss Life Hypoindex, the average offer rate for mortgage loans stood at 5.32 percent in the first week of November, reflecting a marginal adjustment in the ongoing rate environment.
“The rate only fell by two basis points, showcasing a minimal decrease that highlights the current stagnation,” explains Jiří Sýkora, a mortgage analyst at Swiss Life Select. He continues, “The index’s performance mirrors earlier patterns; in June, there was an even more modest month-on-month decline of just one basis point. This trend reinforces the idea that banks are not under pressure to implement significant rate reductions.”
The stagnation means that the calculation for monthly mortgage payments remains stable. For instance, if one were to secure a loan of 3.5 million crowns up to 80 percent of the property’s estimated value (Loan-to-Value ratio), with a maturity term of 25 years and the prevailing average offer rate of 5.32 percent, the monthly payment would amount to 21,116 crowns in November. In comparison, the payment was slightly higher in October at 21,155 crowns, reflecting a minor month-on-month decrease of only 39 crowns.
Since the beginning of this year, homeowners have seen a reduction in their monthly installments by nearly 1,400 crowns on average; this notable decline can be traced back to the higher January installment of 22,472 CZK. Such figures further illustrate how minimally the rates have shifted in the current year.
A more significant drop in rates will not come this year
Jiří Sýkora attributes the current rate stagnation to potential factors such as banks fulfilling their loan issuance targets for the year or attempting to recover losses incurred during periods when rates were lower than two percent, bolstering their margins in the process.
In Sýkora’s view, “A significant reduction in mortgage rates is not anticipated before the start of the new year. In the most optimistic scenario, any reductions might only materialize as part of spring promotional offers, which are traditionally aimed at invigorating the mortgage market post-winter hiatus.”
While mortgage offers featuring more competitive rates have emerged, these changes have yet to sufficiently alter the overall market dynamics. Major transformations in the market are unlikely unless a significant player within the mortgage sector opts to substantially lower their rates, which would heighten competitive pressures.
According to Tom Kadeřábek, the head of the product department for Swiss Life Select, banks are reluctant to begin discounting their rates, fearing they would inadvertently “cannibalize” their existing loan portfolio with higher interest rates.
This cautious approach stems from the likelihood that clients would seek to refinance their old loans at these newly lower rates, resulting in a financial setback for the banks.
Kadeřábek notes, “At present, banks are using elevated margins to build reserves for scenarios involving early repayments, effectively passing those costs onto consumers. The enactment of new legislation has not significantly helped, as it allows banks to impose slightly higher fees for early repayment.”
Experts in mortgage financing assert that this new fee structure does not adequately compensate banks for potential losses, and it is important to note that it currently applies only to new contracts initiated after September 1 of this year.
Libor Ostatek, a mortgage expert at Broker Trust, points out that banks are now pricing the risk of premature loan exits by approximately 0.3 to 0.5 percent higher. “Should a bank need to account for a financial loss, it could potentially amount to hundreds of thousands of crowns for the borrower,” he emphasizes, underscoring the financial implications for clients amid these shifting mortgage conditions.
Do changes in interest rates affect consumer spending
Rates have emerged in the market, their overall impact remains limited. Unless one of the major players in the mortgage sector decides to make a bold move and drop rates significantly, we are likely to see more of the same stagnation for the foreseeable future.
Tom Kadeřábek from Swiss Life Select adds to the discussion, noting that banks are currently hesitant to lower their rates. ”They risk ‘cannibalizing’ their existing loans with higher rates. If they lower rates, clients with older loans might rush to refinance, leading to substantial losses for the banks,” he explains. Essentially, the financial institutions are stuck in a dilemma—lower rates might attract new clients, but they could also lead to the exodus of existing ones, which they cannot afford.
Moreover, recent legislative changes that allow banks to impose higher fees for early repayments exacerbate the situation. This new law seems to penalize borrowers for wanting to escape from unfavorable loans, effectively locking them in. According to Libor Ostatek from Broker Trust, banks are already pricing this risk of early repayment into their mortgages, adding around 0.3 to 0.5 percent to their rates. Should clients decide to refinance, they could face a financial setback of hundreds of thousands of crowns—definitely not a trivial loss!
The overarching trend in the mortgage market at the moment is one of stability, albeit one that many might view as frustratingly stagnant. With minimal adjustments to rates and a cautious approach from banks, the outlook for current homeowners and potential buyers is one of patience. As we await any significant shifts in the market, it’s advisable to keep an eye on your finances, heed the advice from the experts, and prepare for a potentially different situation come next year.
So hang tight, keep checking in on rate trends, and perhaps find ways to weather this extended period of stagnation. We may just find ourselves on the brink of a more exciting mortgage adventure soon—but not just yet!
