Czech National Bank announced plans to tighten mortgage lending rules as of October to prevent overheating in the sector. The central bank warns that conditions have relaxed too much, with extremely low interest rates enabling credit to be extended to people who may not be able to pay back when the rates go up. Interests currently average around 1.94 percent and the number of mortgages increased by one third in 2015.
ČNB wants banks to give mortgages of up to a maximum of 95 percent of the property value, so that the lenders would be able to recover their principle even if a crisis occurred, triggering a wave of foreclosures. In its latest report, the bank wrote that the Czech banking sector’s ability to deal with potential shocks is stronger than it was a year ago and that the sector would be able to withstand a strong recession.
