Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Czech central bank caps mortgage loans as property prices soar

EconomyJun 12, 2018 09:00AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: A bird flies over the medieval Charles Bridge in Prague

By Jan Lopatka

PRAGUE (Reuters) - The Czech central bank said on Tuesday it would cap mortgage loans at nine times borrowers' salaries, addressing concerns a build up of debt could destabilize the financial system in the event of an economic downturn.

A sustained economic upswing along with close to rock-bottom interest rates and record low unemployment have driven sharp gains in property prices, especially in Prague, while supply is being throttled by bottlenecks in construction permits.

Until now, there have been no income-related restrictions on the amounts banks can lend to applicants for housing credit.

"We are ... interested mainly in what will happen to loan servicing when the good times end," central bank Governor Jiri Rusnok said in a statement announcing the cap.

"Although this may not come soon, it will happen one day. As soon as interest rates or unemployment start to rise, a large subset of households could run into loan service problems, which in turn would negatively affect the condition of banks."

The central bank said it estimated residential property was on average 14 percent overvalued at the end of last year.

The new nine times debt-to-income limit for mortgages will take effect in October.

An additional debt servicing-to-income rule says borrowers cannot take loans if monthly repayments would exceed 45 percent of their net income.

The new restrictions come on top of a loan-to-value (LTV) cap of 80 percent introduced last year on most mortgages. Banks can allow LTV of up to 90 percent on 15 percent of their loans.

Since those regulations, the number of provided mortgages has dipped, but the central bank said when refinancing was excluded, new housing loans still grew by 8.8 percent in February.

House lending makes up 60 percent of all bank credit in the EU member country.

The central bank also on Tuesday raised the capital buffer banks must hold against economic downturns by 25 basis points to 1.5 percent of risk-weighted assets from July 2019.

PRAGUE LEADS REGION

Apartment prices in Prague, helped by investment purchases and buying for short-term rentals to tourists, lead central Europe.

They rose 8.1 percent year-on-year in the first quarter to 75,600 crowns ($3,480) per square meter, according to Deloitte's Real Index. Countrywide, prices are up 47 percent since 2014 at 56,200 crowns.

A survey by developers put the year-on-year price rise of new dwellings in Prague at 23 percent to 88,552 crowns ($4,070.23) per square meter in the first quarter.

Comparative prices in Warsaw were $2,221-$2,454, according to transaction data from Cenatorium. In Budapest, the average price per square meter was $1,523 last year, according to Hungary's statistics office.

The Czech central bank said less than 10 percent of loans provided last year would be disqualified by the new measures, and some of those could be covered by an exception allowing banks to exceed the limits in 5 percent of cases.

But lender Ceska Sporitelna (VI:ERST) said the impact could be bigger.

"(It) can affect a quarter to a third of new mortgage applicants ... mainly among young people who need to finance their first home," it said.

In both Poland and Hungary, regulators apply an 80 percent basic limit on loan-to-value, and a 50 percent debt servicing-to-income limit for standard borrowers. Slovakia is phasing in a limit on loans at eight times annual income. It will also ban loan-to-value credit exceeding 90 percent from July.

On the Prague Stock Exchange, shares in Moneta Money Bank (PR:MONET) dipped 0.7 percent and Komercni Banka (PR:BKOM) lost 0.1 percent, the only two losing stocks in the PX index (PX) which was up 0.3 percent on the day by 1243 GMT. Erste Bank (PR:ERST) (VI:ERST) traded 0.6 percent higher in Prague.

Czech central bank caps mortgage loans as property prices soar
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email