September 26, 2018 / 8:28 AM / 2 months ago

Czechs scramble for mortgage loans before tighter rules bite

* Prague apartment prices rise 50 pct in three years

* Stock of mortgages over three years climbed 46 pct

* Tougher income requirements aimed to cool market

By Jason Hovet

PRAGUE, Sept 26 (Reuters) - Czech mortgage loan demand has jumped by up to 30 percent for many lenders in recent months due to a last-minute dash by borrowers before tougher income requirements take effect on Oct. 1, part of central bank efforts to cool a hot housing market.

The Czech housing market has boomed in recent years, with the price of new apartments in Prague rising about 50 percent in the last three years. The stock of mortgage loans has grown by 46 percent in that time, Development Ministry data shows.

A number of factors have boosted the market, including falling unemployment that is the lowest in the European Union, surging wages, a dwindling supply of new apartments, a period of record low interest rates and the rise of services like Airbnb.

Tighter income requirements are the Czech National Bank’s latest measure to tame the market. It has recommended banks cap loan-to-value (LTV) ratios on mortgages at 80 percent, or 90 percent in some cases.

From Oct. 1, the regulator is recommending borrowers’ debt should not exceed nine times their salary and monthly payments should not exceed 45 percent of net income.

The result so far has been a rush by many to grab loans before the measures take effect. Some banks estimate up to a quarter of applicants may be disqualified by the income demands. But analysts say rising interest rates will help buoy bank earnings despite an expected slowdown in loan growth.

“We have recorded a significant rise in demand for new mortgages in August and September,” said Filip Hruby, spokesman for Ceska Sporitelna, the country’s second largest bank by assets which is part of Austria’s Erste Group Bank.

He said demand is 30 percent higher in both months versus July. About half of new mortgages were being fixed for eight years or longer, he added.

Other banks contacted by Reuters also reported a rise in demand of 20-30 percent since the beginning of summer, including the Czech units of Austrian bank Raiffeisen, Italian lender UniCredit and Prague-listed Moneta Money Bank .

Komercni Banka, also listed in Prague and majority owned by French group Societe Generale, did not give estimates on mortgage growth but said it expected a drop in demand next year. But it said it was hard to say if that would be as low as 10 percent or as much as 30 percent.

The central bank is hoping the new income requirements can slow the mortgage market.

“Certainly a slight cooling of the market is an adequate result,” Governor Jiri Rusnok told Reuters in an interview on Sept. 11. “For us it is about the health of our banks.”

Reporting by Jason Hovet Editing by Edmund Blair

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