2020 Mortgage Summary - everything you need to know to be up to date!
The year 2020 brought a lot of unexpected changes. For the world of finance, mortgages and real estate, the year 2020 was a turning point. In this article, I bring you the most important news from the mortgage market.
Main points of this article are:
Interest rates are the lowest since 2016 — possibly not for long
the highest-ever volume of mortgages was provided in 2020
Changes in DTI and DTSI regulations means higher mortgages available
The 4% Property Transfer Tax was canceled
Tax deductions for interest were reduced
The limit of the time "Test of Income" tax exemption was increased
The banks are still open to working with the British after Brexit
Banks are merging together
Since March 2020, when Czech National Bank lowered the interbanking rates (link), banks continuously lowered rates from the average in March of 2,44% to December's 1,96%. The trend seemed to stop in January 2021, when most banks settled at the lowest rates for 80% financing at 1,89% (without need of life/loan insurance), and in the past two weeks, four banks already announced they will start increasing rates. Nothing tremendous - just 0,1-0,2% - but this might indicate the current market "has hit the new bottom" and rates might stabilise for a while around 2%, or even start rising again.
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For some, the volume of mortgages provided might be surprising, and to be honest, I didn't expect it until the middle of the year. While the total amount of mortgages was not the highest, with the property prices rising, the average mortgage was higher, resulting in the highest volume of mortgages ever provided.
Why? I don't have the statistics, but my personal opinion is that it is a combination of few factors.
cancelation of the 4% transfer tax
lowering the interest rates
uncertainty on the global market (people might want to invest into something more stable
property prices keep growing
deregulation of DTI / DSTI (already covered in this article)
Property Transfer Tax cancellation:
As an anti-COVID-19 measurement, the government suggested a cancelation of the Property Tranfer Tax, which was then officially cancelled later in 2020. This easing also applies to purchases made from 1 December 2019 on and can be applied backwards. For possible return of the money, please refer to your local tax authority or your tax consultant.
Mortgage interest tax deduction:
You probably know that if you live in the property you have a mortgage on, you can deduct the interest paid within that year from your tax base. This amount used to be, until the end of 2020, up to 300.000 CZK (effectively saving 15% from this = 45.000 CZK on taxes). New mortgages provided from January 2021 will carry maximum interest deductions of 150.000 CZK (saving 22.500 CZK). Unless your mortgage is higher than 7 M CZK, you probably will not be affected by this.
This rule also applies for new mortgages provided. It doesn't mean that if you have a mortgage from 2018, you can deduct less next year - the key information is that this applies for new mortgages signed after 2021.
We must point out that the law is not too specific about the details. The source states:
"What counts as getting the mortgage is unclear. Is it the signing of a loan agreement, the signing of a purchase agreement or even the transfer of rights to real estate in the real estate cadastre? The law speaks only of the provision of housing needs. The General Directorate of the Financial office will still have to comment on this issue in such a way that the tax authorities approach the issue in a uniform manner."
Limit in the time test:
Are you familiar with this term? It is connected with Income tax and says after what period of ownership you do not need to pay income tax on the profit within the sale. To put it simply, if you live in the property for 2+ years and you sell it afterwards, you do not need to pay income tax on it. The change of time test changed for properties in which the owner did not live — typically investment properties. In these cases, the term increases from 5 years of ownership to 10 years, starting from purchases made in January 2021.
The British and the banks:
Oh the never-ending story of Brexit. We asked the banks in the past already three times, and now again this year. Luckily most banks still consider the UK part of the EU — in terms - in terms of mortgage requirements, of course. The only bank which replied otherwise was Raiffeisenbank but, as long as you bank with them for more than six months, they typically do not care about the residency at all.
During the 2020, Moneta Money Bank acquired Wüstenrot. The purchase price of the acquisitions was 175 million EUR. Also, in the beginning of February 2021, it was announced that Raiffeisenbank is acquiring EquaBank.
To summarize, in the last year, property purchasing conditions became better for buyers in many ways (except for the prices, of course). Transfer tax was cancelled, interest on mortgages is lower, the rules on maximum mortgage amount compared to income have eased.
Unfortunately, this doesn't apply for those who are working in the industries hit by the pandemic the hardest - restaurants, travel, accomodation, and flights.
The text above is personal opinion of the author and extract of the sources mentioned in the article. It is not meant to be a legal, tax or financial advise in any matter. Always consult the details with your legal, tax and financial advisor indivudally.