Are Mortgages Really More Affordable Now?

2. 6. 2020

Do you want to get a mortgage, but can't keep up with the current situation and regulations regarding mortgage loans? What can be the new obstacles in the way of getting a new home that have emerged during the pandemic and who can get a mortgage? We asked Mr. Jiří Vagner who helps our clients with mortgage processing and other financial services.

How do you think coronavirus has changed the mortgage market?
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The disease itself had only impacted health but the way mortgage and real estate market work were strongly affected especially by the government restrictions. Thanks to them the economy of many sectors has changed and with it also the thinking about investment and buying property.

How has the thinking about mortgages been affected?
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The government restrictions have had a negative impact on many sectors. Many employees lost work or have lower salaries. Especially in gastronomy and tourism, but also sports and culture. Small businesses have closed all together, large firms have laid people off. People who had planned to get a mortgage have canceled immediately and waited for the situation to develop. Banks have reacted to the situation by not granting loans to these and other risk groups.

It wasn't easy to keep up with the changes. What has happened,exactly?
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Mortgage and real estate markets were stopped and no one new for how long. People were just waiting for nearly a month and a half. Partially because of economic impact on family finances, partially because of the announcement of the abolition of the property transfer tax and partially because of the unfounded expectation of the fall of property prices. If you stop receiving your salary or it's cut in half it is reasonable to stop investments until things clear up. Of course a common man will not have a proper overview to contradict the media. But what happened in connection to the abolition of the property transfer tax simply shouldn't have happened. To announce that a tax that saves tens more often hundreds of thousands of crowns at a time when even the Ministry of Finance didn't know under which conditions, is in my opinion iresponsable. As we later found out it hasn't even been communicated in the coalition and that is why we have waited for the results for many weeks. And all this in a situation when every day there was catastrophic news from the government about closed borders, shops, restaurants, theatres or the lack of safety equipment. The result? Only the ones who really had to were buying.

Czech National Bank (CNB) lowered interest rates. How did the mortgage banks react?
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People literally took the banks by storm, but found out that there wasn't going to be lowering of rates on long-term loans. Why, when the key interest rate announced by the CNB fell and the CNB even announced the relaxation of restrictive measures for getting mortgage loans? On the contrary, the banks assessed the market situation as risky and could not reduce rates. They had to increase the so-called risk margin, which kept rates at the level of rates from the first quarter until last week. The reaction of the banks was completely natural and, moreover, supported by a huge wave of requests from clients who asked for deferred payments. So far, I believe that the CNB, together with the government, has not acted fairly towards clients, but also towards banks.

What factors affect the interest rate?
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As I mentioned, one of the factors is the risk margin. Simply put, the higher the risk of default, the higher the risk payment to the bank. Many people accuse banks of abusing the situation, and an increased risk margin is just another profit. But this is completely wrong - yes, the bank will be left with a larger part of the installment as a "temporary profit", but from this "profit" it then pays losses from non-performing loans or creates provisions to cover incurred losses. Then there are the costs of fund resources, the cost of providing credit and, of course, business margins or profit. We must not forget the great competition on the banking market, which is also a major driver of interest rates and, of course, complete macroeconomic indicators of the Czech Republic.

What were the other measures taken by the banks?
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Most banks have limited real estate financing with less than 20% of personal funds. At the same time, they defined risk areas and job positions that will not be financed or only to a limited extent. Some banks stopped lending completely and some set general conditions for clients so that very few would meet them.
When do you expect a return to the old ways in the mortgage market?
This week we registered the first positive changes - rates are falling slightly, banks are also responding positively to the renewal of the affected sectors, and I believe that all measures will be further relaxed during June and more and more clients will be eligible.

So who won't get a mortgage at this time?
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People from problematic fields who do not yet receive income from employment or business will still have problems, but I really believe that it will turn around and that no one will be limited in a few weeks. The big question is how will banks assess clients who have requested a deferral of payments? Or how will self-employed people who have applied for support due to a loss of income be treated? However, I believe that this will always be judged individually.

So how should people orient themselves in this situation?
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I would say that a normal person can’t orient himself in all of this. There are so many factors, information and news that it just isn’t possible. We have all the information, we work 10-12 hours a day and we can barely process everything. Changes and news come literally every hour. I therefore recommend finding an experienced financial advisor who has a perfect overview of the entire banking market. Many people still think that getting a mortgage directly without help is cheaper, but the opposite is true. Every good advisor will give you an overview of the entire market free of charge, ensure the most advantageous conditions and thus save both your money and, most importantly, many hours of your time, which you will lose by visiting banks and subsequent calculations that will never be as accurate. In addition, even if you take two days off and go around these banks, you will only learn the advantages or only some of the disadvantages. Your choice of bank will then be more of a lottery. And I am not even mentioning the significant difference in income calculations, the differences in banks' pricing policy, etc.

If you have any questions, please "contact us"::https://www.philip-frank.com/en/#contact. We will be happy to arrange all types of loans for you.

Jiří Vagner
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