The CNB reportedly plans reducing the early repayment costs on mortgage loans, according to information from daily Hospodarske Noviny. The measure has been in preparation since last autumn and at this point, consultations with banks seem to be near their end. The primary goal is to no longer allow banks to charge those who pay early their loan with costs pertaining to missed profit. Some banks also charge brokerage fees, which makes early repayment very expensive. It also interferes with loan refinancing, especially at another bank, though competition has mitigated that effect somewhat. Nevertheless, it will become much easier for people to either pay back their loan early or refinance it, since costs will reduce close to tenfold. Naturally, banks are not very happy with the CNB’s intentions, but they will follow the measure regardless.
The CNB has used the consumer protection act as an argument for its regulation, as it believes that the current setup doesn’t let borrowers estimate how much early repayment is going to cost them. This is particularly applicable to loans with fixed-rate clauses, as banks tend to be creative when calculating the variable-rate component of the costs borrowers need to cover when they wish to pay back early or refinance. Vladimir Stanura, with the Czech Banking Association, explained Hospodarske Noviny that the CNB had told banks if they weren’t happy, they could always lobby the finance ministry to amend the consumer protection act. However, he was doubtful it would ever happen, because banks believe that any further changes will cause them even bigger problems.
Given the current state of the mortgage loan market, however, expectations are that banks will not suffer that much financially. There will be some reduction of interest revenue for sure, but given that there are a lot of mortgage loans with a temporarily fixed interest rate at the moment, the odds are that not many would like to refinance, given that lending rates on new mortgage loans are now higher than what they were when the fixed rate-clause was signed. There may be some willing to pay back their loans early, given the higher borrowing costs at the moment, but we doubt there are too many people with the available resources to do so. The new measure will very probably lead to another increase in mortgage loan rates, as banks will seek to cover lost revenue in some way. On the other hand, we expect that the lending market will become even more competitive, as banks will be able to lure borrowers easier with refinancing options.