The rise in interest rates does not end at the beginning of the new year either. Inflation in the Czech Republic is rising and the mortgage rates are rising with it. The largest Czech banks have increased the rates by 0.5% month-on-month.
Interest rates are not the only thing that is increasing. In addition to building materials, real estate prices continue to rise as well. Despite all these aspects, demand for real estate is still high. Especially in Prague and the Central Bohemian Region, demand far exceeds supply.
There are several reasons for such a high demand, one of which is that in times of uncertainty and high inflation, real estate purchase represents a relatively safe, low-risk investment compared to other investment instruments. Property is no longer just a place to live in, but it is also a meaningful use of money. On the contrary, the reason for the low supply of real estate is the overall insufficient and slow construction process of building. Even before the pandemic, there was a real estate shortage on Czech market, and especially flats. And Covid pandemic has slowed construction even more.
Also the reconstruction of already owned real estate is demanded, therefore despite the rising interest rates, there is still interest in mortgages, even though the mortgage markets are returning to pre-pandemic, and therefore lower, levels. Mortgage rates respond to the basic rates that are being set by the Czech National Bank. Due to current inflation, the CNB is highly likely to further raise basic rates. Higher rates would then affect interest rates and make mortgage loans more expensive.