Mortgage for buying property in the Czech Republic
Koutris Efstratios, Monday, 27 January 2014
This article is part of a series of 8 articles about buying property in the Czech Republic. The other articles in the series cover the following topics:
Introduction
There are several things that a prospective buyer needs to consider before purchasing a property in Czech Republic. Most typically, one of the most essential options is the acquisition of a mortgage from a respective bank or a mortgage broker. This decision is itself a big step that needs to be made under responsibility and mature thought, because repaying the mortgage implies a long-term financial commitment. In Czech Republic there is a plethora of banks that offer mortgages under different terms, with each option having its own advantages and respective disadvantages. Therefore, the following lines will describe the basic rules that currently apply on mortgages in Czech Republic, while at the same time focusing on the foreigner’s point of view. Furthermore, this article will outline the major banks that provide the option of a mortgage including their respective terms.
Banks in Czech Republic
Until 2007, Czech banks were administering loans and mortgages without severe restrictions because of the economic stability that the admission of Czech Republic in the European Union (2004) brought about. However, the forthcoming crisis that was initiated in 2008, had a very negative effect on the criteria with which banks lend money to individuals. Criteria became very stiff and strict, and as a result prospective real estate investors had few banking opportunities to choose from. The biggest comfort for both banks and foreign investments came in 2009, a year which CR had to comply with the EU directive (article 56 of the EU articles of establishment). This directive forced CR to not discriminate between Czech people and foreigners when it comes to purchasing properties in CR. Hence, the entering of foreign investments in the real estate field, aided in a decisive way the viability and the subsequent blooming of a plethora of banks that were offering mortgages to foreigners. In fact, 2012 has been the second highest year in terms of amounts of mortgages after 2007.
Currently, and in terms of total assets (data of 2012) CSOB (CeskoSlovenska Obchodni Banka) is the leading bank in Czech Republic with 937.2 billion CZK, whereas Ceska Sporitelna is second with 920.4 billion CZK. Other major banks in Czech Republic include KB (Komercni Banka) (786.8 billion CZK), UniCredit Bank CZ (318.9 billions), Raiffeisenbank (197.6 billions), GE Money Bank (136.9 billions) etc. It is worth mentioning that mortgages can be also obtained by the so-called ‘low cost’ banks such as FioBank, mBank, Airbank etc., which offer low fees and don’t require any special services.
Mortgage rules
In principle, Czech banks, or banks that are activated within Czech Republic, are much more willing to finance a real estate purchase, via a mortgage, once the investors intend to use this property for themselves. Most of the major banks in Czech Republic offer mortgages at 100 % of the estimated value. The term estimated value can prove to be very tricky because the bank will assess the property by estimating its value on the basis of an expert opinion. Therefore, there are many cases where there is a discrepancy between the value that the seller is offering the property to the investor and the value estimated by the bank. Nevertheless, most banks offer a repayment term for up to 30 years, with a fixed interest rate for 1,2,3,4,5,10,15, and 20 years. For example, the interest can be fixed for the first 5 years at a set rate, after which a new interest rate will be applied for the next 5 years (according to the rates valid at that specific time). The average mortgage interest rate in June 2012 was 2.95 %, an all- time low percentage (currently, it is 3.17 %) whereas in 2011 it was 3.61 %. These low interest rates are one of the major reasons that fuel the investments on real estates in Czech Republic. Moreover, the mortgage funds can be used for finishes, renovations or other items such the purchase of a new kitchen. Finally, there are several tax advantages such as the possibility to deduct mortgage interests from the individuals’ tax base. It needs to be said that different banks have a different minimum required amount for a loan. For instance, Raiffeisenbank has a minimum of 300.000 CZK, whereas UniCredit Bank CZ and KB have a 200.000 CZK. In any case, the individual must prove that they gain an annual income that is sufficient enough in order to repay the loan back.
Can a foreigner get a mortgage?
A high percentage of the inhabitants in Czech Republic, and especially in Prague, are of foreign origin. Therefore, one of the most common questions is whether, and under which circumstances, do Czech or international banks offer mortgages to foreigners. First of all, this purely depends on the bank. For example, Ceska Sporitelna will administer a mortgage to foreigners that either have a permanent or temporary residence in Czech Republic. In other words, virtually anyone who can register in the foreign police to get the subsequent temporary residence permit can apply for the loan. This permit can be acquired shortly after the individual has arrived in Czech Republic. On the other hand Raiffeisenbank requires a minimum stay (within Czech Republic) of 2 years in order to administer a mortgage, whereas KB requires a permanent residency only for people outside the European Union. CSOB on the other hand, examines each case individually.
This article is part of a series of 8 articles about buying property in the Czech Republic. The other articles in the series cover the following topics:
Introduction
There are several things that a prospective buyer needs to consider before purchasing a property in Czech Republic. Most typically, one of the most essential options is the acquisition of a mortgage from a respective bank or a mortgage broker. This decision is itself a big step that needs to be made under responsibility and mature thought, because repaying the mortgage implies a long-term financial commitment. In Czech Republic there is a plethora of banks that offer mortgages under different terms, with each option having its own advantages and respective disadvantages. Therefore, the following lines will describe the basic rules that currently apply on mortgages in Czech Republic, while at the same time focusing on the foreigner’s point of view. Furthermore, this article will outline the major banks that provide the option of a mortgage including their respective terms.
Banks in Czech Republic
Until 2007, Czech banks were administering loans and mortgages without severe restrictions because of the economic stability that the admission of Czech Republic in the European Union (2004) brought about. However, the forthcoming crisis that was initiated in 2008, had a very negative effect on the criteria with which banks lend money to individuals. Criteria became very stiff and strict, and as a result prospective real estate investors had few banking opportunities to choose from. The biggest comfort for both banks and foreign investments came in 2009, a year which CR had to comply with the EU directive (article 56 of the EU articles of establishment). This directive forced CR to not discriminate between Czech people and foreigners when it comes to purchasing properties in CR. Hence, the entering of foreign investments in the real estate field, aided in a decisive way the viability and the subsequent blooming of a plethora of banks that were offering mortgages to foreigners. In fact, 2012 has been the second highest year in terms of amounts of mortgages after 2007.
Currently, and in terms of total assets (data of 2012) CSOB (CeskoSlovenska Obchodni Banka) is the leading bank in Czech Republic with 937.2 billion CZK, whereas Ceska Sporitelna is second with 920.4 billion CZK. Other major banks in Czech Republic include KB (Komercni Banka) (786.8 billion CZK), UniCredit Bank CZ (318.9 billions), Raiffeisenbank (197.6 billions), GE Money Bank (136.9 billions) etc. It is worth mentioning that mortgages can be also obtained by the so-called ‘low cost’ banks such as FioBank, mBank, Airbank etc., which offer low fees and don’t require any special services.
Mortgage rules
In principle, Czech banks, or banks that are activated within Czech Republic, are much more willing to finance a real estate purchase, via a mortgage, once the investors intend to use this property for themselves. Most of the major banks in Czech Republic offer mortgages at 100 % of the estimated value. The term estimated value can prove to be very tricky because the bank will assess the property by estimating its value on the basis of an expert opinion. Therefore, there are many cases where there is a discrepancy between the value that the seller is offering the property to the investor and the value estimated by the bank. Nevertheless, most banks offer a repayment term for up to 30 years, with a fixed interest rate for 1,2,3,4,5,10,15, and 20 years. For example, the interest can be fixed for the first 5 years at a set rate, after which a new interest rate will be applied for the next 5 years (according to the rates valid at that specific time). The average mortgage interest rate in June 2012 was 2.95 %, an all- time low percentage (currently, it is 3.17 %) whereas in 2011 it was 3.61 %. These low interest rates are one of the major reasons that fuel the investments on real estates in Czech Republic. Moreover, the mortgage funds can be used for finishes, renovations or other items such the purchase of a new kitchen. Finally, there are several tax advantages such as the possibility to deduct mortgage interests from the individuals’ tax base. It needs to be said that different banks have a different minimum required amount for a loan. For instance, Raiffeisenbank has a minimum of 300.000 CZK, whereas UniCredit Bank CZ and KB have a 200.000 CZK. In any case, the individual must prove that they gain an annual income that is sufficient enough in order to repay the loan back.
Can a foreigner get a mortgage?
A high percentage of the inhabitants in Czech Republic, and especially in Prague, are of foreign origin. Therefore, one of the most common questions is whether, and under which circumstances, do Czech or international banks offer mortgages to foreigners. First of all, this purely depends on the bank. For example, Ceska Sporitelna will administer a mortgage to foreigners that either have a permanent or temporary residence in Czech Republic. In other words, virtually anyone who can register in the foreign police to get the subsequent temporary residence permit can apply for the loan. This permit can be acquired shortly after the individual has arrived in Czech Republic. On the other hand Raiffeisenbank requires a minimum stay (within Czech Republic) of 2 years in order to administer a mortgage, whereas KB requires a permanent residency only for people outside the European Union. CSOB on the other hand, examines each case individually.
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