The Board of the Czech National Bank (CNB) has set new limits on credit indicators used while applying for mortgage loans. In accordance with the newly acquired legislative power, the CNB may set mandatory limits for mortgage lenders. The changes concern DTI and DSTI and will be mandatory from 1 April 2022.
- The DTI (debt-to-income) indicator expresses the total amount of debt expressed in multiples of the applicant's net annual income.
- The DSTI (debt service-to-income) indicator expresses the total amount of monthly debt payments to the total amount of the applicant's net monthly income.
- The LTV (loan-to-value) indicator represents the ratio of the loan amount and the value of the purchased property.
The new indicators are set differently for the two groups of applicants. The age of the applicant will be decisive, while more favorable conditions will apply for applicants under the age of 36.
The following limits will apply to applicants over the age of 36:
- DTI at 8.5
- DSTI at 45%
- LTV up to 80%
For applicants under the age of 36, the limits will be as follows:
- DTI at 9.5
- DSTI at 50%
- LTV up to 90%
The effect of the new limits can be demonstrated in the following example:
A household with a total net monthly income of CZK 50,000 wants to apply for a mortgage loan. Their intention is to buy a property whose purchase and estimated price is CZK 5,000,000. Both applicants are more than 36 years old. Based on the new DTI limit, their maximum loan amount will be CZK 5,100,000. The highest possible loan repayment would be CZK 22,500 per month. In the case of this particular property, the bank could provide a loan of a maximum amount of CZK 4,000,000, which corresponds to 80% of LTV. Applicants would be required to prove their own resources in the amount of at least CZK 1,000,000.
Conversely, if the applicants were less than 36 years old, under otherwise the same conditions, the bank could provide a loan of up to CZK 5,700,000 (ie DTI 9.5), with a maximum installment of CZK 25,000 (DSTI 50%). In the case of the mentioned property, the highest possible loan would be CZK 4,500,000 (LTV 90%). This means that, unlike older applicants, those interested in a loan under the age of 36 would only CZK 500,000 down payment.
Therefore, if you, as applicants, exceed the age of 36 after 1st April 2022 you will be subject to stricter loan conditions and banks will be able to provide you with a lower mortgage loan than they could provide you nowadays.