The Swiss Life Hypoindex saw a slight dip again in November. However, this change is minimal and does not provide any significant relief in mortgage payments for prospective homeowners. Banks’ margins in the Czech Republic on mortgage loans remain around four-tenths of a percentage point above the long-term average.
As of November 4, 2024, the average offer rate for mortgage loans in the Swiss Life Hypoindex stood at 5.32% (compared to 5.34% in October). The rate has fallen by just two basis points over the month, similar to the trend seen in July. This year, the Swiss Life Hypoindex has dropped only twice: in June, by one basis point, and in March, by two points.
Mortgage interest rates measured in the Swiss Life Mortgage Index have, for some time, ceased to align with the Czech National Bank’s (CNB) key interest rate adjustments. A further reduction in the central bank’s two-week repo rate—expected this week, with the market anticipating a quarter-point cut—is therefore unlikely to significantly affect mortgage rates.
No noticeable improvement in mortgage rates is expected by year’s end. Both interest rate swaps, which largely influence mortgage rates, and the banks’ offered mortgage rates indicate that banks currently enjoy relatively high profit margins. “The reasons are straightforward; I only expect an adjustment under competitive pressure, which would happen when a major player significantly reduces its interest rates and, thus, its margin. This would compel other banks to follow suit in the competition for customers,” explains Tom Kadeřábek, Head of Product at Swiss Life Select.
Kadeřábek adds that banks are hesitant to reduce interest rates as doing so could cannibalize existing loans with higher rates. Borrowers might then seek early refinancing at lower rates, leading to losses for banks. This situation exemplifies how “mortgage tourism” and legislative provisions for early repayment keep mortgage rates high. If banks could impose a reasonable early repayment penalty, current interest rates might be lower.
In November, the monthly repayment on a CZK 3.5 million mortgage loan covering up to 80% of the property’s estimated value (LTV), taken out over a 25-year term at an average offer rate of 5.32%, amounted to CZK 21,116. Since the start of the year, this amount has dropped by less than CZK 1,500.
