Mortgage interest rates have once again climbed to the psychological threshold of 5%, mainly due to tensions surrounding Iran and higher funding costs on the interbank market. What can we expect in the second half of the year? We have prepared three possible scenarios for the mortgage market and practical recommendations for anyone planning to buy a home. Counting on a rapid decline in mortgage rates is currently more of a gamble than a sound strategy.
The total volume of new housing loans granted during the first half of the year reached approximately CZK 300 billion. However, these strong figures require some context. The number of newly issued mortgages remains below the record levels of previous years. Instead, borrowers are taking out larger loans because property prices have increased significantly. The average mortgage now exceeds CZK 4.5 million, compared to just under CZK 3 million five years ago.
The market gained momentum during the spring due to several one-off factors. Many buyers wanted to secure more favorable financing conditions, complete their purchase before further increases in property prices, or avoid stricter lending rules for investment properties. At the same time, geopolitical developments—particularly tensions involving Iran—have had a significant impact on mortgage pricing.
The conflict in the Middle East has increased uncertainty in financial markets, making interbank funding more expensive. These higher funding costs are directly reflected in mortgage interest rates. Mortgage rates beginning with a “4” have become the exception rather than the rule, and borrowers should now expect rates around 5%. As a result, three different scenarios are possible for the second half of the year, depending largely on how the geopolitical situation develops.
Scenario 1: A Roller-Coaster Market
The most likely scenario is a continuation of the current environment. Financial markets are expected to remain highly sensitive to conflicting news regarding diplomatic negotiations, ongoing geopolitical tensions, and fluctuating funding costs. Much will depend on whether shipping through the Strait of Hormuz remains uninterrupted and whether attacks on oil infrastructure continue. Markets may appear calm one day only to become volatile again the next.
Under this scenario, mortgage rates are likely to fluctuate between 5% and 6%. Rates below 5% would probably be limited to exceptional individual offers or premium conditions for selected clients. Waiting until late summer or autumn in the hope of significantly cheaper mortgages is therefore unlikely to pay off.
Scenario 2: Calmer Markets, Slightly Lower Rates
A more optimistic scenario assumes that geopolitical tensions ease and financial markets stabilize. If uncertainty declines and funding costs fall, mortgage rates could gradually move closer to the 5% level.
This would not represent a return to the exceptionally low mortgage rates seen several years ago, but rather a modest improvement compared to current conditions. Mortgage rates around 5% may become the new normal. Even a small reduction could make financing accessible to more households or leave borrowers with a more comfortable financial buffer after paying their monthly installments.
Scenario 3: Renewed Market Panic
If geopolitical tensions were to escalate significantly again, funding costs on the interbank market could increase further, pushing mortgage rates above 6%. Another potential risk would be rising oil and commodity prices, which could fuel inflation once again.
In such an environment, central banks would have less room to reduce interest rates, and commercial banks would gradually pass their higher financing costs on to borrowers. Although this is not considered the base-case scenario, it cannot be ruled out entirely.
The Bottom Line: What Should You Do?
The conclusion is straightforward: do not count on mortgage rates falling significantly below 5% anytime soon. The Czech National Bank has also sent a clear signal by raising interest rates for the first time in four years, indicating that a rapid return to cheap money should not be expected. Meanwhile, property prices are still likely to continue rising, although probably at a slower pace than during the first half of the year.
If you are planning to buy a home, it may not be wise to wait for the “perfect” market conditions. A difference of a few tenths of a percentage point in your mortgage rate will often have a smaller impact on your overall costs than the hundreds of thousands of Czech crowns by which property prices may increase while you wait. If you have already found a suitable property, it makes sense to start arranging financing now—not because you should buy at any cost, but because understanding your borrowing options will allow you to negotiate with greater confidence and without unnecessary time pressure.
If you are considering buying a home and would like to understand your financing options, we will gladly guide you through every step of the mortgage application process. We will compare current offers available on the market and help you structure financing that matches your financial situation and long-term goals. From the initial calculations to submitting your mortgage application, we will support you throughout the entire process to maximize your chances of securing the right mortgage under favorable conditions.
We Also Help Property Investors
Investment property financing deserves special attention. Since spring, the Czech National Bank has introduced stricter requirements for mortgages used to purchase investment properties. Investors should expect banks to finance no more than approximately 70% of the property’s value while also applying stricter assessments of the applicant’s overall indebtedness.
As a result, investors need greater equity and more thorough preparation before applying for financing. This is precisely where an experienced mortgage advisor can make a significant difference. We help clients evaluate financing options across multiple banks, compare their lending criteria, and structure mortgage solutions that remain effective even under the Czech National Bank’s stricter lending requirements.
