Recommendation – Limits applicable to mortgage loans

The CNB regularly assesses mortgage loans and the overall situation on the mortgage market. Based on the information it gathers in the course of macroprudential policy-making and financial market supervision, it issues a Recommendation on the management of risks associated with the provision of retail loans secured by residential property (the “Recommendation”).

Risk:
Relaxed credit standards, rapid growth in mortgage loans and rising property prices in an expansionary phase of the financial cycle may give rise to conditions for the accumulation of systemic risks in the financial sector.

Recommendation:
The Recommendation contains a summary of recommended limits for selected credit ratios and a set of other rules, the observance of which, in the CNB’s opinion, constitutes a prudent approach when conditions on the financial market are taken into account.

The recommended limits relate mainly to the following ratios:

  • loan-to-value (LTV)
    The ratio of the loan to the value of collateral should not exceed 90%.
  • debt-to-income (DTI)
    Applicants’ total debt should not exceed nine times their net annual income.
  • debt service-to-income (DSTI)
    Applicants should spend no more than 45% of their monthly income on the monthly repayments of all their loans.

In its Recommendation,1 the European Systemic Risk Board (ESRB) mentions LTV, LTI (loan-to-income), DTI or DSTI requirements among the macroprudential instruments that national authorities can use to support financial stability on top of the instruments contained in CRD IV. The aim of these instruments is to eliminate feedback between growth in lending and property price growth.

For details of the CNB’s approach to the introduction of macroprudential tools targeted at exposures secured by residential property in the Czech Republic, see the thematic article in FSR 2017/2018 (pdf, 264 kB).

Currently applicable Recommendation

Overview of Recommendations issued

Recommendation of Date
of effect
Subject and main changes 
16 June 2015 16 June 2015 Setting of LTV limits
14 June 2016 14 June 2016 Tightening of LTV limits
 13 June 2017 13 June 2017
  • Extension of applicability to:
    • all persons authorised to provide consumer credit
    • all loans provided to clients that have a loan secured by residential property
  • Definition of risky DTI and DSTI levels
12 June 2018 12 June 2018 Setting of DTI and DSTI limits
11 June 2019 11 June 2019 Technical changes to the reference volume of loans (which is used as the base for calculating the proportion of new loans subject to exemptions from the LTV, DTI and DSTI limits)
13 December 2019 13 December 2019
  • Recommendation concerning additional mortgages that could have an investment purpose: to distinguish two types of additional mortgages and to monitor them separately
  • Recommendation to particularly prudently assess the asset and income situation of clients with applying for additional mortgage
  • Clarification of the terms and conditions for providing mortgage loans for the purchase of buy-to-let residential property
  • Enabling compliance with exemptions from LTV, DTI and DSTI limits at the lender group level
1 April 2020 1 April 2020 Relaxed the LTV and DSTI limits, cancelled the DTI limit
8 July 2020 8 July 2020 Cancelled the DSTI limit, relaxed the buy-to-let LTV limit

 Links to previous Recommendations


1 Recommendation of the ESRB on intermediate objectives and instruments of macro-prudential policy (ESRB/2013/1).