(Disclaimer: This communication is simplified for better understanding. A detailed description of how banks source capital is not essential for this context.)
In recent days, three-year and five-year swap rates (hereinafter referred to as 'IRS') have increased. Banks use these as a key benchmark when pricing new mortgages. In this brief report, I will explain the situation and outline possible solutions without jumping to hasty conclusions.
What does this mean?
The IRS is a critical reference value that influences the rates at which banks may offer new mortgages in the future. How quickly this change reflects in actual mortgage offers depends on the specific bank.
Changes in IRS typically trickle down into offer rates gradually, usually over a period of weeks to a few months. It always depends on the specific bank, previous market trends, and whether the IRS is increasing or decreasing:
- Decrease: Gives banks room for higher margins; therefore, it reflects in offer prices more slowly.
- Increase: Banks generally implement changes much sooner.
Mortgage offer rates usually fluctuate within the range of IRS rate + risk costs + bank margin. Therefore, one must add a value, typically between 0.75% and 1.5%to the IRS value.
The price of interest rate swaps is volatile. If the spike is short-lived, it might not affect mortgage offers at all. Current developments do not provide 100% certainty on what rates will look like in 2–3 months, but they are a crucial piece of the puzzle if you are deciding on a home loan today.
What actually happened?
In the past week, the IRS price rose by more than 0.5% (Source 1, Source 2). Following this jump, it is hovering above the 4% threshold. In recent weeks, we were securing rates from 4.29% for the most attractive loans (without requiring additional services). If the cost of resources remains high, these options would shift toward the 4.89% mark.
The Impact in Numbers
(Comparison of 4.29% p.a. vs. 4.89% p.a.)
For a 10,000,000 CZK loan with a 30-year maturity, the difference in interest paid over a 3-year fixation period is 179,110 CZK. For smaller loans, the impact is proportional:
- 5,000,000 CZK loan = 179,110 / 2 = 89,555 CZK
Disclaimer: Calculations may vary between banking institutions depending on their specific interest models and associated loan fees.
How to Proceed?
We do not recommend panicking; a long-term increase in mortgage rates is expected only if resource prices stay in higher ranges. However, we strongly suggest evaluating your situation and preparing your options.
- Scenario 1: I plan to buy a home within 3–4 months.In this case, do not delay. Secure a rate reservation at a bank as soon as possible (usually valid for 45–60 days) and intensify your property search. Consider 'financing without a selected property,' which guarantees your rate and funds for the transaction.
- Scenario 2: I’d like to buy eventually, but there’s no rush.Do not be pressured into signing a mortgage without a selected property. Strictly consider how it fits into your long-term plan.
- Scenario 3: My fixation ends in 2026.Request a rate offer for the next period as soon as possible. If you receive an offer lower than 4.6% p.a., consider accepting it for a further 3 or 5-year fixation in advance. If you miss out and the bank offers a higher rate, monitor resource prices; if your fixation ends in 6–12 months, the situation may still change.
Causes and Threats of Further Rate Hikes
Short-term:
- Unstable geopolitical situation: Current global events are serious and shouldn't be underestimated. However, this may still be a temporary spike that might not last.
Long-term:
- The IMF confirms that higher deficits and public debt can increase long-term government bond yields. These yields then push up the price of other financial instruments, such as the IRS (Source 3).
- Simply put: If we behave with less fiscal responsibility long-term, the market's appetite to lend to us decreases. We must then offer higher yields to attract capital. This is a long-term threat that could push mortgage rates higher than the widely anticipated 3–4% range.
Summary & Personal Recommendation
If you are planning a purchase or facing a fixation change soon, it makes sense to check today's offers and prepare alternatives since the IRS has risen. However, this doesn't automatically mean every bank will hike prices immediately.
The recent IRS growth has narrowed the window for further mortgage rate cuts; conversely, transaction costs may rise. That said, do not let FOMO (Fear Of Missing Out) drive you. Do not buy a property that doesn't meet your long-term needs or investment criteria just because of current rates—which, for now, are certainly not 'lost forever.'
