After the new regulations of the Good Credit and the increase in interest rates, the dream of owning housing is getting further away from people, especially the young. However, this could change soon thanks to the measures of the Ministry of Finance. He wants to enforce that the rules for obtaining mortgages for applicants under 36 years of age should be more moderate.
In May 2019, the Ministry of Finance submitted a draft amendment to the Good Credit Act, after which the central bank could enforce compliance with the new rules on mortgage lending. So far, these are recommendations, but in most cases, commercial banks follow them. The purpose of the regulations was to prevent the increasing indebtedness of Czechs.
The proposal also includes measures relating to the provision of mortgage loans to young people under 36 years of age. In particular, they should be subject to milder conditions than older applicants.
Stricter rules due to Good Credit regulations
Until recently, it was possible to obtain a mortgage for the entire value of the property and to achieve it was not such a big problem. However, the Good Credit’s strict recommendation rules, together with rising interest rates, severely restricted the availability of mortgage loans. What conditions must the applicant meet today?
- Applicants can apply for a mortgage of up to 80% of the value of the property, only a limited number of clients reach 90%.
- The monthly repayment of the mortgage, together with other loans, may not exceed 45% of the net monthly income, the total debt shall not exceed nine times the net annual income.
These regulations are the main reason why young people who are only at the beginning of their careers often do not reach credit. At the same time, it is one of the clients whose income and living standard is expected to increase in the future. Therefore, the Ministry of Finance is trying to enforce milder conditions and make mortgages more accessible.
New conditions for applicants under 36 years
The amendment should relate to the amount of mortgage and debt. Applicants under 36 years of age should be able to borrow 10 percentage points higher than other clients.
At the same time, the monthly repayment of all loans could be equal to 50% of net monthly income, thus exceeding nine times the net annual income.
Yet there is no reason to celebrate. It is still a mere proposal that must be approved by the Government and both the Houses of Parliament. It is also unclear when the law should apply after approval. However, it is certain that thanks to the abovementioned concessions, many more young families would reach their own housing. Many people’s dream is to live on their own and at present rising housing prices make it impossible for young people to get their own housing.
Future development of the mortgage market
In addition to Good Credit regulations, the rise in interest rates also had an impact on mortgage availability. They stabilized at the beginning of the year and since February have been around 2.9% (for refinanced loans to 2.8%). As a result, there was generally less interest in mortgage loans and a decline in the volume of mortgages.
At the beginning of 2019, the average interest rate started to decline, reaching 2.86%, and in July even 2.61%. Although mortgages have become cheaper, interest in not continues to decline. In the second half of the year, interest rates are expected to reach up to 2%.
However, for the first quarter of 2019, the Czechs owe more, but they better repay their debts. The total debt of Czechs is 2.34 trillion crowns, but the number of people who have difficulty repaying their loans is decreasing.