The Czech banking market anticipates an influx of new clients seeking housing loans this year, but it also foresees an increase in the number of individuals struggling to repay them.
Last year, demand for housing loans rebounded as interest rates fell, leading to a surge in mortgage applications. In 2025, Czech banks expect this trend to continue, with both the number of loans and their volume increasing. However, rising real estate prices are pushing applicants to borrow more, and the average mortgage loan amount has risen from 3.37 million to 3.86 million Czech korunas over the past year.
While housing loans are becoming more common, so too are repayment challenges. The mandatory 20% down payment required for loans is forcing potential borrowers to save for longer periods, and slower income growth in the Czech Republic is compounding the difficulty of repayment. The share of monthly income spent on mortgage payments is growing. According to the Czech National Bank (CNB), more than half of mortgage holders are already exceeding the recommended Debt Service-to-Income (DSTI) limit of 40%, which measures how much of a person’s income goes towards paying off debt.
“The DSTI is already at a fairly high level. If this continues, it’s possible that the central bank could intervene this year,” said David Aym, Vice President of mortgage broker Gepard Finance. While the CNB lifted the DSTI limit in 2023, Aym noted that interest rates are now higher than in previous years, which could lead to further challenges for borrowers.
By the second half of last year, mortgage payments accounted for more than 45% of the monthly income for 40% of average bank clients, with some clients facing monthly payments that exceeded 60% of their income. This marks a sharp contrast to 2021, when only 1% of clients faced such heavy financial burdens.
The Debt-to-Income (DTI) ratio is also on the rise. In the second half of 2024, 11% of loans exceeded the central bank’s recommended limit of 8, which measures total debt relative to annual net income.
The CNB’s autumn financial stability report noted an increase in “substandard lending,” but assured that systemic risks from new loans remain low. However, the report also stated that the central bank has kept the limit values for DTI and DSTI lending parameters deactivated for now.
Mortgage holders who need to refinance their loans this year could face additional financial strain, particularly as interest rates have risen significantly since 2020. For example, a client with a five-year fixed-rate loan signed in 2020 at 2% interest could now be paying several thousand korunas more per month with the average rate now hovering around 5%.
A survey from the Czech Banking Association (CBA) found that about 50% of clients needing to refinance in the coming years will also have to start saving more to meet their new payment obligations. The rising cost of mortgage payments is becoming a growing concern for Czech households, with the potential for an increase in debt defaults in the near future.
