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The Czech Central Bank has advised lenders to adopt stricter limits on mortgages for investment properties as part of its latest financial stability review. It recommended reducing loan-to-value ratios to 70% -compared with the standard 80% for regular home loans-and capping borrower debt at seven times annual income instead of eight. The move comes amid strong property price growth, driven by limited supply and high investor demand, with values recording double-digit increases over the past year. Board member Jakub Seidler said the guidance targets a small segment of the market to prevent early vulnerabilities. Other mortgage rules remain unchanged, and the banking sector continues to show strong capital buffers and resilience.
The Czech Central Bank, in guidance issued earlier this week, recommended that domestic lenders apply more conservative limits to mortgages taken for investment properties as part of its latest financial stability assessment. The regulator advised banks to reduce their loan-to-value exposure on mortgages tied to investment purchases to 70%, compared with the standard 80% applied to regular home loans. Advertisement
In addition, banks were encouraged to enforce a stricter ceiling on borrowers' debt relative to annual income, suggesting a ratio of seven times annual earnings for investment-related mortgages rather than the eight-times threshold allowed for standard residential loans. This advisory stance came as the country continued to experience robust growth in real estate values, fuelled by restricted supply and persistent interest from investors. Over the past year, Czech property prices have consistently shown double-digit increases, extending a trend that has been evident since the post-pandemic recovery phase.
A board member, Jakub Seidler, noted in a statement that activity in the mortgage market had surpassed long-term averages. He explained that residential property prices were continuing to climb rapidly and that the proportion of investment-driven mortgages was increasing. He said the recommendation was directed at averting potential vulnerabilities at an early stage, clarifying that the measure applied to only a small subset of overall mortgage lending.
While tightening guidance for investment mortgages, the central bank chose to keep all other mortgage-lending rules unchanged. It reiterated that the broader banking sector remained resilient, maintaining the countercyclical capital buffer for banks at 1.25%. Recent stability assessments have repeatedly highlighted the strength of Czech banks, supported by high capitalisation levels and prudent risk management, even amid rising property valuations.
Source - Reuters
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