Abolition of the DSTI parameter restricting the provision of mortgages. What will be the effects?
At its meeting on June 1, 2023, the Czech National Bank (CNB) canceled the obligation to comply with the DSTI parameter, which will change the rules for providing mortgage loans.
The deactivation of the parameter is effective from July 1, 2023, i.e. essentially with immediate effect. Loans signed after this date may no longer be limited to meeting the DSTI parameter as before. Banks were forced to monitor, comply with and evaluate this DSTI parameter from April 1, 2022, when it entered into force.
How did the DSTI parameter limit lending?
Applicants under the age of 36 were subject to a coefficient of 50%, and applicants over 36 were subject to a coefficient of 45%.
The DSTI indicator expresses the total amount of monthly debt
repayments to the total amount of the applicant's net monthly income.
Simply put, for a client under 36, the monthly repayments of all debts
must not exceed half of their net monthly income. If the applicant had a
net income of CZK 40,000 per month, the sum of all loan repayments
could not exceed CZK 20,000 per month.
This restriction makes sense for applicants with lower and average incomes, since higher indebtedness can be critical and risky in the future from the point of view of proper repayment of the loan. The catch is that the net monthly income of the applicant or multiple applicants accepted by the bank may not be the same as the real income of the loan applicants. We most often encounter this contradiction with self-employed people. The parameter also did not make sense for applicants above 36 years of age and with a net household income of more than CZK 100,000, where it makes sense to exceed the income limit of 45%.
Higher credit limits for loan applicants
The deactivation of the DSTI parameter will thus bring the possibility of providing a higher loan
for those applicants who ran into its limits in the past months.
However, the banks' creditworthiness requirements remain the same, as do
the restrictions according to the DTI and LTV parameters. The
cancellation of this DSTI parameter will not have such a fundamental
impact on the mortgage market in the Czech Republic as a whole, but on
specific individual applications. The deactivation of DSTI is certainly a
welcome change and will help many loan applicants to obtain a higher
mortgage than before.
If you are interested in your credit capacity, i.e. the maximum possible amount of credit that you will be able to reach from July 1, 2023, you can contact us now. We will be happy to prepare updated calculations for you according to the new conditions.