Last week, the Banking Council of the Czech National Bank ("CNB") deactivated the upper limit of the DTI indicator with effect from January 1, 2024.
The DTI indicator expresses the total amount of debt expressed in multiples of the applicant's net annual income. For applicants over the age of 36, the limit was up to 8.5 times the annual income, for applicants younger than 36, then up to 9.5 times the annual income. These conditions were binding from April 1, 2022. Earlier, the CNB deactivated the DSTI parameter, which expresses the total amount of monthly debt repayments to the total amount of net monthly income of the loan applicant(s).
What will be the impact of disabling the DTI parameter?
Deactivating the parameter will have practically zero impact on the provision of mortgage loans in the Czech Republic. Unfortunately, we will not see a significant improvement and better availability of housing loans. One of the reasons is the fact that, even though the CNB has deactivated another DSTI parameter, banks still monitor this parameter internally and continue to evaluate it as part of checking the creditworthiness of clients. The banks themselves have more leeway to grant individual exemptions, and they do, but the liberalization has not been nearly as great as expected.
Only a few of the applicants encountered the limit of the DTI parameter, so the deactivation of this parameter will have a real impact only for a small group of applicants. In addition, it can be expected that the banks will again evaluate this DTI parameter, as well as the DSTI parameter, and therefore even now we cannot expect a major easing.
Unfortunately, the limit on the amount of LTV for older applicants still applies and the fact that applicants over 36 have an LTV limited to 80%, younger loan applicants under the age of 36 can obtain a loan of up to 90% LTV.
Thus, deactivating this parameter will not result in more favorable and accessible loans. After all, we could expect more affordable loans in the next year 2024, assuming that the CNB proceeds to lower interest rates and mortgage loan interest rates could reach at least a slightly milder range of 4-5% next year.