Mortgage market continues record growth

While the mortgage market grew 47 percent last year, this growth could be deceiving as some experts estimate around 30 percent of all new mortgages are refinancings of existing mortgages.

Data from the Regional Development Ministry reported banks granted more than 71,000 new residential mortgage loans worth 119 billion Kč (6.2 billion/4.7 million euros) to individuals in 2011. In total, banks granted 72,721 mortgage loans worth in excess of 141 billion Kč to individuals, businesses and municipalities, up by 47 percent year on year.

Record-low interest rates, the lower value-added tax (VAT) applied to housing until the end of last year and refinancing of loans were considered to be the main factors in the growth of mortgage deals, industry players said.

Česká spořitelna Mortgage Center reported a 90 percent increase in new deals for the year, up to 30.4 billion Kč, while Raiffeisenbank registered a 10 percent drop in new deals, having granted just 7,000 loans for the year. Hypoteční banka said it made loans to 19,000 new customers in 2011.

However, the overall increase in the mortgage business does not reflect the current state of the real estate market, said Josef Malíř, managing partner at Star Capital Finance.

A large number of loans with three-year fixation periods were taken out in 2006 and 2007, which would have been coming to an end, prompting people to refinance in 2011, Malíř said.

"Any agent will tell you there is no real estate selling at the moment; the only properties selling these days are either extremely cheap properties or very rare, exquisite properties that are in a good location that affluent buyers jump on," he said.

Ordinary properties for everyday people are barely changing hands, Malíř added.

While the implementation of increased VAT on housing in January may have influenced some buyers, it is unlikely to have played a significant role in the rise of mortgage loans since the VAT is only applicable to newly built buildings, which have been decreasing since 2009, Malíř said.

"After the first real estate crisis in 2009, when financial markets were experiencing difficulty, people didn't start new development projects; there's nothing happening in new building projects here," he said.

Although the average interest rate of mortgage loans dropped to an all-time low of 3.56 percent in December 2011, according to the Fincentrum Hypoindex, this would not have had a huge impact, Malíř said.

"People were more influenced by the overall negative press about the economy and about markets being unstable," he said.

"In this situation, hardly anyone would want to commit to long-term financing. The low interest rate may have influenced people to refinance but very few decided to buy property."

Malíř does not expect an increase in mortgage loans in 2012 since banks are not aggressive in giving out loans, he said, explaining that banks are short on capital.

"There won't be much refinancing this year and unless the real estate market starts moving I don't think we will see another increase in the mortgage market," he said.

Since the mid-1990s, banks have provided 589,274 mortgage loans worth 1.2 trillion Kč, with individuals being granted 573,000 mortgage loans worth 867 billion Kč.

Laura Burgoine can be reached at
lburgoine@praguepost.com