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Mortgages and Mortgage Market
Ondřej Venhoda
ondrej.venhoda@rb.cz
CEVRO, March 10, 2025
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Introduction
mortgage: probably the highest loan in your life
loan secured by a lien on real estate
by definition not loan for housing - most common use
other: building a family house, buy-to-let investments, renovations, refinancing loans,
business ventures….or any other financial need
around 1 000 000 households with mortgage
Three main indicators describing the mortgage market?
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Mortgage Market in the Czech Republic 2020-25
Headlines:
2020: mortgage rates hit record lows, highest number of new mortgages
2021: surge in mortgage applications, real estate prices continue to rise sharply
2022: golden era of mortgages comes to end, highest interest rates for years
2023: stagnation of real estate prices, people wait for lower rates
2024+25: back to the 2020 trend but not at extreme levels
three key indicators of the mortgage market: real estate prices, mortgage interest
rates, volume of mortgages issued
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Volume of Mortgages Issued
10,3
14,7
23,4 36,2
52
72,1
103,5
146,1
118,4
77,2
90,7
124,4
128,5
158,8
153,2
196,8
229,4
229,3
225,5
189
266
459
197
150
275
0
50
100
150
200
250
300
350
400
450
500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Mortgages in billions CZK
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Mortgage Interest Rates
0
1
2
3
4
5
6
7
1/2004
6/2004
11/2004
4/2005
9/2005
2/2006
7/2006
12/2006
5/2007
10/2007
3/2008
8/2008
1/2009
6/2009
11/2009
4/2010
9/2010
2/2011
7/2011
12/2011
5/2012
10/2012
3/2013
8/2013
1/2014
6/2014
11/2014
4/2015
9/2015
2/2016
7/2016
12/2016
5/2017
10/2017
3/2018
8/2018
1/2019
6/2019
11/2019
4/2020
9/2020
2/2021
7/2021
12/2021
5/2022
10/2022
3/2023
8/2023
1/2024
6/2024
11/2024
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Real Estate Prices
50
60
70
80
90
100
110
120
130
140
150
160
170
180
190
200
210
220
230
240
250
260
index(2010=100) Listing prices of apartments (index, 2010 = 100)
Praha ČR bez Prahy
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Demand & Supply
Number of completed housing units in the Czech Republic
family houses flats
8
Demand & Supply II.
Why do prices go up?
basic D&S partial equilibrium model
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Nominal and Real Interest Rates
nominal - rates explicitly stated in loan or deposit agreements
real - nominal interest rates adjusted for changes in purchasing power
-10
-5
0
5
10
15
Real Interest Rate
CPI avg 2T repo EOY (In) Ir
10
Application - mortgage
How much will I overpay on my mortgage in 30 years?
nominal vs. real overpayment
mortgage: 5 000 000 Kč, 30 years, 5 % interest rate: monthly repayment 26 841 CZK
30 x 12 x 26 841 = 9 662 760 CZK: nominal overpayment 4 662 760 CZK
inflation (CPI) 3 % p.a.: What´s the real amount of the repayment of CZK 26 841 in 30 years? 11 059 CZK
in today's value
inflation (CPI) 10 % p.a. – 1 539 CZK; inflation (CPI) 1 % p.a. – 19 927 CZK
= don´t count overpayments for mortgages (only for shorter loans with lower inflation)
= always be guided (mortgages, investments) by the real, not the nominal value of money
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Macroprudential Policy
LTV (loan to value)
mortgage amount vs. appraised value of collateral (not market value)
max. 80 % (90 % for individuals under age 36)
most common: 80 %, american 50-70 %
experience with 100+ % (USA 2008)
LTV reduction: second collateral, supplementary loan (from building savings)
DSTI (debt service to income): 45/50 % - abolished as of July 1, 2023
DTI (debt to income): 8,5/9,5x - abolished as of January 1, 2024
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Basic Types of Mortgages
classic
offset
american
australian
combination of overdraft & mortgage
„inside-out“
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Conditions for Mortgage Applicants
legal age (or 21 years)
number of applicants, co-applicant(s)
proof of income
interest rate – fixed rate
RPSN = total loan costs
property valuation for collateral (for maximum LTV)
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application-mortgage-1.pdf
Application
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Affordability Index
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Affordability Index vs. Interest Rates
Thank you
for listening