Mortgage in the Czech Republic FAQ
Published:
A mortgage is the best option for buying a property or if you need to borrow some money. The Czech mortgage market is full of various offers and we know how complicated it can be to understand them. Getting a mortgage is always a very individual process.
What can I finance with a mortgage?
A mortgage can be used to finance real estate that serves to satisfy housing needs. The most common reasons include: Purchase of an apartment/house; purchase of a plot of land and subsequent construction; reconstruction of real estate, etc.
When should you start sorting out a mortgage?
We recommend at least a basic consultation with a mortgage specialist before searching for real estate. You will then know how much the bank is willing to provide you with for the mortgage, how much it will cost you in interest and you will be in a better position to negotiate with the seller of the property. Under no circumstances do we recommend signing a reservation contract/paying a reservation fee to a real estate agency if you have not yet started to sort out the financing!!!
What will you need to get the mortgage?
Residential status:
Most banks require temporary or permanent residence. However, if you only have long-term residence, then not all is lost - some banks accept it ☺ What banks do not accept is a visa.
If the applicant comes from a country that is on the EU list of high-risk countries (in terms of financial propriety), then obtaining a loan is a bit more complicated, but still a realistic option. In such a case, the application procedure is always very individual.
Income:
The mortgage applicant must prove that they have a regular income. If you are an employee, it is simple - just a confirmation of income and a few account statements. If you do business, your tax returns are documented. For an entrepreneur, the choice of the bank is absolutely crucial. Each bank interprets the data from your tax return differently - the amount of income they ascertain from your tax return differs considerably from one bank to another, by as much as even 50%! Banks also decide whether to accept income from abroad as valid on an individual basis.
Property:
A mortgage is a loan where you use property as security. The property being purchased is most often the one that is pledged as security, but it is possible to use a different one. The mortgaged property must always have been approved for housing ,i.e. it is fit for people to inhabit!
How much money and for how long will the bank lend me?
The rule is that the repayments of all (even those already existing) loans of the client should not exceed 50% of their net monthly income. However, some banks lend only up to 45% of income. The maximum length of the mortgage is 30 years and the client must not be older than 65/70 years at the time of the final loan repayment - it depends on the bank.
Another limitation is the amount of the loan in relation to the value of the mortgaged property, the so-called LTV (Loan to Value) parameter. Standard mortgages have an LTV of a maximum of 80%, i.e. 20% is paid by the client from their own pocket and 80% is lent to them by the bank. It is possible to apply for a loan of up to 90% of LTV, but the interest rate will always be slightly higher.
Important notice: The value of the mortgaged property is not automatically its purchase price! The property is always assessed by a bank appraiser, and if you are buying an overpriced property, the estimated price of the property (by the appraiser) may be lower than the purchase price. In this case, the client must use more of their own funds to make up the difference.
How important is the interest rate
Some banks offer a lower interest rate than others. But it may be dependent on getting additional products such as bank insurance, credit cards etc. You pay extra money for these so in the end such offers can be very expensive!
Differences in the market
Most people apply for a mortgage at the bank where they have a bank account. It is not true, though, that as clients of the bank they get better conditions. There are over 10 banks on the market offering mortgages. It is a good idea to compare more bank offers – or hire a well-experienced financial advisor to do it for you.
To sum up this article, we have prepared answers to the most frequently asked questions we have actually been asked by our clients:
Question: I am a foreigner from outside the EU and I do not yet have temporary or permanent residence. Can I apply for a mortgage?
Answer: Yes. The choice of banks will be slightly smaller, but the resulting loan conditions will be the same as for those applicants with temporary or permanent residence.
Question: I am a foreigner from a country on the EU list of high-risk countries. Will the bank lend to me?
Answer: It always depends on the specific country of origin and on the applicant's past and present professional activity in the Czech Republic, but for 90% of such clients we are able to arrange a mortgage ☺
Question: The real estate agency tells me that I must arrange a mortgage with them - supposedly to be sure that I will get it. Is this true?
Answer: This is nonsense. Such an agency is clearly not a serious player and we recommend clients wash their hands of it as soon as possible. It is the same as if a real estate agency told you when selling the land that for the subsequent property construction, you have to use a construction company only they recommend. Unfortunately that is not a joke - some of our clients have actually been faced with such a situation.
Question: I want to take out a mortgage, but I have not been assigned a Czech birth number.
Answer: Since it can take up to 6 months to obtain a birth number, it is much easier to choose a bank that does not require one ☺
Question: I am an entrepreneur, I do business in the Czech Republic, but I invoice clients abroad so my income is in a foreign currency. Will this be a problem for the bank?
Answer: Some banks have a problem with this, others don't. It always depends on your line of business and the currency in which you invoice - EUR, USD and GBP are preferred by banks.