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Housing Finance Market Overview
In the Czech Republic, housing finance is mainly raised from banks and Bausparkassen, with the Česká spořitelna (savings bank, including their Bausparkassen branch) taking the largest share. Bausparkassen have a share of 33 per cent in the market. Starting from a very low 3.7 per cent mortgage debt to GDP in 2001, the mortgage market has been growing with an enormous pace in the Czech Republic. The mortgage debt to GDP ratio increased from 3.7 per cent in 2001 to 15.3 per cent in 2007.
The Market from the Perspective of the Demand Side
In the Czech Republic, the usual maximal loan-to-value (LTV) ratio amounts to 85 per cent. The amount paid in interest on a mortgage loan to finance housing needs can be deducted from the taxable income up to a certain amount. Most loans are fixed interest loans.
House Price Development
Prices of houses in the Czech Republic surged in-between 2000 to 2003 by an average of 16.4 per cent per annum. From 2004 to the end of 2007 this average annual growth rate halved. Residential property prices in the Czech Republic started falling in the third quarter of 2008 due to the global credit crunch and economic crisis, after minimal price increases during the first half of the year.
Special Characteristics of the Market
The Czech Republic has a contractual savings system, the Bauspar system which is characterized by low interest rates on loans and a government interest premium paid on savings. It is offered by specialised institutions, the Bausparkassen. The government grants an interest premium of 15 per cent of the amount saved (up to a set maximum).
Banks and Bausparkassen finance their activities in the mortgage market almost exclusively by using customer deposits.