The end of the DSTI parameter will increase the mortgage by several million

With the abolishment of the DSTI parameter, which used to put a leash on mortgage lending, we now find ourselves pondering the potential repercussions of this decision. The DSTI parameter, which once constrained the lending landscape, has been unshackled by the Czech National Bank (CNB). This move, effective from July 1, 2023, is set to revolutionize the rules governing mortgage loans, heralding a new era for aspiring homeowners.

The lifting of the DSTI parameter now opens doors for higher loan possibilities, especially for applicants who were previously constrained by its limits

However, it’s worth noting that banks‘ creditworthiness criteria and other parameters like DTI and LTV remain unchanged. So, while this change may not revolutionize the entire Czech mortgage market, it will undoubtedly bring relief to many individuals seeking larger mortgages.

Over the past year, mortgage applicants have faced challenges in securing the desired loans due to high interest rates. However, the Czech National Bank (CNB) is now introducing a new initiative by relaxing the DSTI parameter to stimulate the market. Starting in July, banks will no longer be bound by the DSTI parameter, which calculates the ratio between the applicant’s monthly debt repayments and their net monthly income. How each bank responds to this change remains uncertain and individual.

The DSTI limit was abolished from the beginning of the summer holidays. Experts estimate that loosening this key credit indicator could lead to an increase in property sales as more people might opt for mortgages.

Nevertheless, if you find yourself unable to secure a mortgage or are unable to provide proof of income, there are other avenues to consider, such as cooperative financing.

The CNB’s credit indicators for mortgages:

  • Include the Loan to Value (LTV) ratio, which calculates the percentage relationship between the loan amount and the property’s value. As of April 1, 2022, banks are not allowed to provide loans with an LTV above 80% (90% for applicants under 36 years old) for properties purchased for living purposes.
  • Another indicator is the Debt to Income (DTI) ratio, which assesses the total debt of the mortgage applicant in relation to their net annual income. The CNB set this indicator at 8.5 as of April 2022 (maximum of 9.5 for applicants under 36 years old), though its application is not guaranteed for all cases.
  • The Debt Service to Income (DSTI) ratio expresses the proportion of the applicant’s monthly debt repayments to their net monthly income. It is calculated using the formula: DSTI = (total monthly debt repayments / net monthly income) x 100, with the result expressed as a percentage. For instance, if you pay a total of 15,000 CZK per month towards all debts and your net monthly income is 50,000 CZK, your DSTI value would be 30%.

Banks take these credit indicators into account for new loans. For refinanced loans (or continuing mortgages after the fixed rate period), these indicators are used only if the original loan is increased (varying from bank to bank).

In summary, the CNB set the DSTI indicator at 45% (50% for applicants under 36 years old) as of April 2022. From July 1, 2023, the CNB will remove this credit indicator. However, this change does not mean a direct order on how banks should proceed. Before April 2022, banks already differed in their DSTI criteria, some setting it at 50% for certain applicants, while others at 70%. Therefore, the situation may become highly individualized, similar to the period before April 2022.

Currently, banks can make exceptions for applicants they believe will have no trouble repaying the loan in the future. This applies to 5% of the total volume of mortgage loans they provided in the preceding calendar quarter. These applicants may benefit from a 50% DSTI limit (instead of 45%) if the bank allows it.

Pay for rent or save for your own?

In conclusion, the decision to rent or invest in your own property depends on individual circumstances and preferences. Taking out a mortgage does not mean a lifelong commitment; life’s paths are diverse, and financial situations may change. Ultimately, investing in your own property offers stability and potential for growth, giving you the freedom to create a home according to your vision. Trust in life, believe in yourself, and embrace your unique journey.

From June 2023 there are differences between banks! In one bank, based on your credit rating, you will get 3 million, in another bank, 6 million!

If you are considering a mortgage, I am here to guide you and provide insights into financing options and property purchases. If you’re curious about your credit capacity and how much you can avail yourself of from July 1, 2023, feel free to get in touch. Feel free to explore my references if you have the time.

Everyone has a different story, I am here professionally and personally for all those who need my assistance. For the past 10 years, I have specialized in real estate financing, mortgages, and loans. Check my reviews. My service is free for you.

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