Expert from BBRE: The rise in mortgage rates will not affect the real estate market much yet


The years of record low mortgage interest rates are over. The CNB put a definitive end to them when at the beginning of November it raised the basic interest rate by 1.25 percent to 2.75 percent as part of the fight against inflation. “Of course, mortgages will become more expensive, but it will not have a major impact on the real estate market yet,” says Jan Kotaška, CEO of the developer company BlackBird Real Estate.

In the past years, a number of people bought real estate with a mortgage at interest rates below two percent. Currently, many of them are approaching their refixation. Unfortunately for them, it comes at a time when interest rates on mortgage loans are skyrocketing in response to the actions of the central bank. And experts expect further rate increases before the end of the year.

“Soon we will reach four to five percent on mortgages, which will increase mortgage prices dramatically. Depending on the total amount of loans, the price of installments can be up to thousands of crowns lower, which is of course unpleasant. On the other hand, mortgages will always be cheaper than inflation, which significantly reduces the value of people’s savings,” says Jan Kotaška.

The Czech National Bank has to act at the moment, yet it is in a difficult situation. Inflation does not arise only in the Czech Republic, it is partly imported. Among other things, it is contributing to rising prices, which have caused disrupted supply chains caused by the coronavirus pandemic, and it is significantly strengthened by rising energy prices, which subsequently spill over into the price of all products.

“It is interesting how the scissors are opening, for example, between the CNB and the American central bank FED. Although inflation in the USA is even higher than in our country, the FED is still holding a rate of 0.25 percent, while the CNB is already at 2.75 and will probably increase,” adds the real estate expert, making a surprising comparison.

So how will the rise in inflation and the appreciation of money affect the real estate market? According to Jan Kotaška, not significantly so far. The main reason is the long-term lack of new apartments, especially in Prague, but also in the regions. For example, twenty thousand of them would be sold in Prague at the moment, but not even a tenth of them are on the market. The price of apartments also depends on this, which is governed by supply and demand. So a simple equation applies – when there are few apartments, they are more expensive.

Moreover, according to Jan Kotaška, the current rise in mortgage prices is not essential, thanks to this year’s cancellation of the super gross salary. “People have more money because of it. In the case of average salaries of forty thousand, the abolition of the super-gross wage brought people an order of three thousand more per month. Mortgages are most often taken out by spouses, where both have incomes, which represents a sufficient cushion. And people can handle it even in the event of a loss of one income, for example due to maternity leave,” says the CEO of BlackBird Real Estate.

For that reason too, he does not expect the number of people who default on their mortgages to increase dramatically in the near future. “And even if a certain percentage of people were to show up in trouble, there are so few apartments on the market that it won’t have any significant effect on the situation on the housing market anyway,” adds Jan Kotaška, adding that it remains the main obstacle to housing solutions lack of new apartments.