Mortgages for investment speculation have virtually disappeared from the market; people are buying apartments for their own housing

Most Slovaks can afford to buy property even today, just perhaps not the one they aspire to. This is not so much because of higher interest rates, but rather the caps set by the National Bank of Slovakia, designed to protect the buyer from a disproportionate debt. As a result, many prospective homeowners will not achieve their dream home and are being forced to downgrade their expectations, observed Herrys real estate agency on the basis of transactions from the last year.

While as many as 56% of properties were financed with the aid of a mortgage in 2021, last year the figure was only 45%. The property market is slowly reviving following a period of uncertainty. However, despite the rise in mortgage interest rates, two client groups in particular remained in the market following the rise in mortgage interest rates. The first group consists of people buying a property for themselves to meet their own housing needs, due either to a change in their life situation such as a wedding, birth of a child, or other personal or family circumstances. The second group consists of people who have funds available and are seeking to invest in property to safeguard them against persistent high inflation.

“In Slovakia, the long-standing belief continues to hold true that investing in property is one of the best means of preserving value, as long as it is a good property in a desirable location. Typically, such purchases are not financed by a bank, but instead are covered from personal means – either from the sale of another property, inheritance, or savings,” explains Martin Bečár, partner at Herrys real estate agency.

Speculative investors are particularly deterred by the current interest rate but also by the restrictions by the National Bank, which regulate the loan amount in relation to annual income, as well as a cap on the maximum repayment amount as a percentage of income.

“Buyers today are not so much limited by the interest rate; they have already come to terms with that and accepted the situation as it is. Nevertheless, in addition to the increased mortgage interest rates, the stricter rules and limits imposed by the National Bank of Slovakia often mean that clients find they cannot attain their dream property. As a result, they are compelled to either downgrade their expectations or look for another solution,” states Martin Bečár, partner at Herrys real estate agency.

There are a number of tools on the financial market that can address any buyer’s situation, and it’s not just about mortgages. Frequently, many young people receive assistance from their parents, who may leverage their own or another property as collateral, all contribute through savings or a loan. In this way a young buyer is not forced to take on the burden of a high mortgage and the associated risk of high repayments. In so doing they are also able to meet the parameters set by the national bank.

“Our work nowadays is perhaps a little more complicated, but, on the other hand, it is much more serious. The entire process of buying a property has become much more sophisticated and is not solely about finding the right form of finance, especially in view of the constraints, but also about identifying an appropriate property affordable for the buyer. This all requires more creative work to arrive at the optimal combination of options ensuring a good outcome for the buyer,” adds Martin Bečár.

According to the analysis conducted by Herrys, apartments in new projects are particularly appealing to clients who have their own funds available. Meanwhile, other buyers are currently showing a preference for properties on the secondary market, where there is also a wide selection of apartments in new buildings, which comprise roughly a third of the offerings on the secondary market (data from July 2023).