The amendment to the Act on the Czech National Bank ("CNB") was signed by the Czech president at the beginning of June. The CNB will thus acquire the statutory power to adjust the parameters for providing mortgage loans. Until now, the central bank could only issue recommendations which, despite their legal unenforceability, the banking institutions followed.
When the amendment becomes effective, the central bank will be able to determine the key parameters that banks have to follow when providing mortgage loans. These are the indicator of the amount of the mortgage loan to the value of the mortgaged property (LTV), the indicator of the amount of the loan repayment to the applicant's total monthly income (DSTI) and the indicator of the total debt to the applicant's annual income (DTI).
The CNB will now be able to set upper limits, either for one or more indicators at a time. In reality, after the law enters into force, the central bank could increase the percentage of applicant's own funds from the current 10 percent to 15 to 20 percent of the total value of the property (if needed). Rising rates are already starting to hinder enormous interest in mortgage loans. An increase in the co-participation in a mortgage loan could mean a significant decrease in interest in new loans in the future.