From 1 April 2017, the CNB has further restrictions on mortgage loans

On April 1st, the second limitation of the Czech National Bank began to apply. It is limitation on the maximum amount of mortgage loans, which limits housing loans to a maximum of 90% LTV.


Max. 90% LTV

The fact that 100% mortgage on the Czech market is thing of  the past is quite clear now, and we almost got used to it. However, starting April, the CNB plans further limitations on mortgage lending, which may now reach a maximum of 90% of the lien value of the property. In addition, the ratio of new loans in the 80-90% LTV range may be no more than 15%, which is approximately one client out of seven. Therefore, banks have raised interest rate surcharges for mortgages over 80% LTV,  that is of 0.30% - 1.00% p.a.


Financing solutions

If loan applicants do not have sufficient amount of their own funds, a few basic funding solutions are offered, namely:

Additional pledge - if you have a second property (a building plot, an apartment or a house) in your family, you can use it as a pledge, or reassurance to get 100% financing for the cost of the property.

Combination with another loan - if you have enough income, according to the bank, you can finance the remaining part of the purchase price with another loan; the most commonly used is the bridging loan from building society savings.

Another claimant / guarantor - if your income is insufficient, you can use for exmple your relative as a guarantor. This relative then can be either your mortgage guarantor or an applicant for an additional loan, which you then repay back to him/her.

Choosing a more affordable property - if you do not have your own resources and none of the solutions mentioned above is appealing to you, then you probably have no other choice than to look for a cheaper property. In which case, you will have enough of your own resources to finance it.


How will the refinancing work?

It will be interesting to see how banks will approach refinancing of previously granted loans in the band above 90% LTV. Let's imagine the situation that someone has arranged a 100% mortgage in the spring of 2014 with a three-year fixation and is now asking for refinancing. If the value of the collateral has not increased sufficiently, then the loan will still be above 90% of the LTV, which the financing bank will be aware of. In this case, the existing bank may happen to offer an inadequately higher interest rate to clients, because  the client virtually can not switch to another bank. He could only do so if he could afford to pay a difference of over 90% of his own savings and refinance the loan as 90% mortgage.


Only the following months will reveal, what impact these CNB restrictions will have on the Czech mortgage and real estate market.