What is more profitable...

1. Choose a mortgage now with a higher interest rate
2. Wait for lower interest rates?

The first option allows you to choose a property and negotiate an interesting discount. The second will offer lower repayments but a potentially narrowed choice of offers, when it is also likely that property prices will rise and discounts will be a thing of the past. Where is the interest rate threshold at which it is more profitable to rent than to buy your own home? We will try to provide an answer to that question here. After the past few years, when the living standards of Czech households have been declining due to falling real wages, this year should finally see a turnaround. According to both the Czech National Bank's forecast and the Ministry of Finance's forecast, nominal wage growth is expected to exceed the rate of inflation, and thus our real wages will also rise. Although the estimates of the various institutions differ slightly, real wages are expected to rise by around 3% to 5%.

And what about real estate?

Many people are still asking themselves whether it is currently advisable to buy their own home, even at the cost of high interest rates, or whether it is better to wait for a more favourable time and rent a property. There is no simple, let alone clear, answer to this. However, based on our experience and experience in the real estate market, it is true that the supply of really good properties is slowly starting to decline, and the best properties are disappearing from the market very quickly. So the old adage is starting to apply: "first come, first served". In our real estate practice we meet clients with different approaches, preferences and requirements. Of course, the price of a property is one of the factors that play a key role in the purchase decision. However, waiting for the property price or mortgage interest rates to fall sufficiently may not always be advantageous. Ultimately, it can lead to the client not getting the best value for money and having to choose from a limited and somewhat over-subscribed range of properties. In practice, this means that they end up buying a less suitable property, a property in worse condition, or having to change their location preferences and so on. This happens because buyers who agree to higher mortgage rates with three-year fixes will always be there, and will buy up the best properties in the property supply.

Don't make decisions about investing in property based solely on the size of your mortgage and its interest rates. It makes sense to invest in your own home even when the mortgage market is less than ideal. Moreover, this situation will not last forever. Mortgage interest rates are variable and can go either way.

Another major factor is that a mortgage loan is typically taken out for decades, which means that the interest rate will change several times during that time. Based on historical data, the long-term average is around 4%. This means that if you take out a loan today with the current terms, you are very likely to be able to repay over the full term, as repayments are likely to be lower in the future.

Let's look at some more numbers...

What level of interest rate already makes our mortgage a better option than renting a home?

Example:
in the case of a renovated 2+kk apartment in Prague with an area of 50 m2 worth CZK 6 million, the monthly payment at an interest rate of 5.29% p.a. (90% LVT, maturity 30 years) is CZK 29 953, of which CZK 22 933 is interest. The average monthly rent for this apartment over five years is CZK 20 040. We calculate this amount in the example from a starting rent of CZK 18 500 for 2024, and take into account an annual rent increase of 4%. However, at an interest rate of 4% p.a. for the same apartment, the interest is only CZK 17,183 (CZK 25,780 total monthly payment), which is significantly less than the monthly rent.
Therefore, the mortgage will become profitable in the short term if the interest rate falls to a value between 4.5% and 5.0% p.a. We expect a gradual decline to the traction value within about 18 months. We expect a first improvement in the situation with the first reduction in the base rate. The next few weeks are therefore the best time to buy a property. The whole buying process represents a period of time during which we could already experience a gradual decline in rates, and also the price rise that will go hand in hand with it.