Today we bring you news about the upcoming limitations by the Czech National Bank with regards to mortgages and how much clients can borrow.
These rules were already approved and they are to be effective from 1.4.2022, basically unifying the amount how much one can borrow and the maximum LTV (Loan-to-Value) ratio of the mortgage.
What is the biggest change?
Two main parts:
- maximum LTV will be limited to 80% financing for applicants with age 36 and above. Right now, you can borrow up to 90% and the age is not anyhow reflected (besides of maximum loan duration), but from April 90% can be approved only to applicants with age 35 and below.
- Unifying rules for the maximum amount to be borrowed. The CNB is using different coefficients banks should follow, called DTI and DSTI (we explaining more in this article, note there are the old rules!). DSTI will be 50% for applicants with age 35 and younger, 45% for everyone else. Similar is with DTI – 9,5 is for those under 36 and 8,5 for everyone else – see example below. Right now, different banks are offering different amounts – depending on your salary. With these new rules, it is expected the outcome will be the same amongst all the banks – that is mainly for employees, not business owners or self-employed people. For those, the same rules apply in terms of the same coefficients but what will remain different is how each bank looks at your income and recalculates the annual gross income in your tax return to usable net income.
About the LTV – does it mean that if I am, for example, 40 years old, I cannot get 90% financing under the new rules?
Unfortunately that’s the case. Banks are supposed to have small amounts of exceptions available but in our experience, they remain only for the bank’s VIP clients or bank employees… So the only way to secure 90% after March, seems to be to proceed with a pre-approved mortgage in terms of Offical Mortgage promise – more info in our blogpost here, it’s the 4th tier. So if you already know you will need 90% for a property later this year and you are 36 or older – definitely look into this ASAP or prioritize finding the property in the following weeks.
Do I understand correctly that I will also be able to borrow less amount of money in each bank?
Yes and no… Some banks are already following the “stricter” rules meaning there will be almost no change with them. It is true that the coefficients will be different by your age – under the age of 36 you will be able to borrow slightly more money compared to someone who is 36 and above. See an example at the end of the article.
Hold on – I am 35 and my partner 37, what now?
So far, most banks confirmed that if you are married or in official partnership, then it is enough if only one of you fulfills the “under 36” rule. So this does not apply for couples who are living or applying together and are not married / registered.
What about refinancing? I already borrowed the maximum I could last time and now with higher rates might struggle.
Luckily they were thinking about this so for refinancing different rules would apply offering easier conditions. The key element is to keep the mortgage the same (or lower the balance, not to increase), then the banks will follow eased DSTI (typically 70%) and in some banks also higher DTI.
What if my salary is inconsistent? Typically for self-employed people or business owners.
For regular employees the banks are using 3-12 months average net income but for self-employed it becomes a bit more tricky. The new rules will be applied for everyone, but what will remain different is how each bank calculates income from self-employment.
With different income recalculations you will keep seeing different max amounts. For the self-employed it is not possible to apply some simple formula as banks also differ in what exactly you do for living (for example lawyer vs. plumber, we covered that here). For self-employed clients we always calculate individually so feel free to get in touch for free advisory.
So what is the deadline for new applications?
We are collecting feedback from all the banks, so far not all banks have the rules set yet. For those who shared already, see the list below (update 25.2.2022):
The other banks didn’t set their rules yet.
Example case:
Two applicants, total income 80.000 CZK netto, no other repayments, no dependables, targeting 80% financing and maximum amount. Assuming 30 years duration and rate 4,2% (can be different).
As you can see, right now different banks offer different amounts.
With the unified rules, it is expected the numbers will be the same in each bank (feel free to inquire and we will send you this excel spreadsheet).
Summary:
There are quite some changes happening, mostly placing limitations on the borrowing options in general.
- It doesn’t influence those of you who have a high salary or income more than enough for the calculations, but those targeting 90% financing and those who are looking to borrow as much as possible should consider proceeding according to the deadlines.
- self-employed people should inquire individually as for them, banks will still use different recalculations as covered here
On the other hand, buying a property is not something which should be rushed so this is an important decision you have to make…
We will be happy to explain everything personally to you in a meeting or over a call. Do not hesitate to approach Robin at robin@expatsfinance.cz or call 777877849 for free consulatation
With best regards,
Robin