Czech Republic started to feel the impact of the global economic crisis only as recently as the second half of 2008. Consumption, including spending on property, has now slowed down fairly drastically. Falling housing demand has been mirrored by slower growth in the mortgage lending.

During 2008, banks in Czech reported an increase in mortgage sales, but it was widely believed this was at a lower rate than the year before.

Now we have confirmation. The latest data from the Ministry of Regional Development reveals that mortgage lending in 2008 plunged by some 20%.

The number of mortgages granted to individual clients dropped 23% from 83,444 in 2007 to 64,497 in 2008. Companies obtained 1,930 mortgages in 2008, a 19% over 2,383 loans in 2007.

In terms of mortgage volume, lending to individuals was down by 25%. In 2008, banks lent individuals mortgages worth CZK113,927 million, compared to CZK142,288 million in 2007.

Companies, on the other hand borrowed 55% more in 2008 - CZK64,222 million worth of mortgages, compared to CZK41,485 in 2007.

Jan Sadil, CEO of leading mortgage bank Hypotecni banka says, "There were many reasons for the fall in the volume of mortgage loans provided in the year 2008, including a record comparative base in the previous period, the macroeconomic development and the financial crisis. The result is quite good in this situation".

Hypotecni banka granted more than 21,000 mortgages in 2008 worth CZK39.6bn, a slight drop from CZK40.4bn a year earlier.

Overall, banks in Czech Republic granted 403,486 mortgages between 2000 and 2008. The mortgage debt grew on a yearly basis by 24% and at the end of 2008 the market amounted to CZK583,520, which is around 16% of Czech GDP.

Mortgage markets experts think that it would be success if banks can provide in 2009 mortgages worth CZK100,000 million.

This is strictly linked to the worsening situation on labour market. In general, the Czech property market isn't over-supplied but prices are fairly static.

The Czech Statistical Office reported on 2nd February that apartment prices in the country increased by just 0.2% in Q4 2008.

In Prague, on the other hand, the average flat price declined by 1.7% (quarter-on-quarter) in Q4 2008. Here, the fall in the number of mortgages granted in 2008 was also the highest - 27%.

All the figures above indicate a slowing property market, which, taking into account the global crisis and the sharp slow down of the Czech economy, will inevitably continue through 2009.

Many experts believe the Czech economy is already in recession, although this hasn't been confirmed yet by official data. In 2008, GDP grew by 5.4% in Q1, 4.5% in Q2 and 4.2% in Q3 and for the whole year it is estimated growth was around 4%, down from 6.5% in 2007.

The slow down is mainly a result of a decline in exports as the vast majority of these (85%) go to the EU, with Germany itself accounting for one third of Czech's exports. Another key factor driving down economic growth is sharply decreasing domestic demand, which, according to estimates, grew only 1.2% in 2008 compared to 5.2% in 2007.

These trends will be even more pronounced this year, as most of Czech's trade partners are already in or are heading for recession. Consumption in Czech is almost certain to slow even further as unemployment - and the fear of unemployment - increases.
The latest forecast from the Czech Ministry of Finance assumes 1.4% economic growth in 2009, a slow pick up in 2010 (2.1% GDP growth) and recovery in 2011 (3.8%).

The figures above, even though indicating a sharp decline in economic growth in Czech, are still far better than forecasts for many other EU countries. The Czech government also has room for some important fiscal measures, such as cutting taxes. And we are likely to see further falls in interest rates.

Our view is that, while Czech will clearly not escape the big economic chill, it is highly likely to be one of the first CEE economies to emerge from it and will return rapidly to steady economic growth, probably as early as 2010/2011. However, much will depend on the timing of a recovery on the revival of its key export markets, most importantly Germany.

We have been inundated lately with questions from investors about the effect of the Credit Crunch on the mortgage market in Central & Eastern Europe.

At the same time, rumour and misinformation has led to a heightened level of concern from those who have invested in off-plan property in the region.

To address this, we have been investigating exactly what is - and isn't - available in the markets in which Property Secrets has offered investment opportunities - and from whom.

Here's the definitive breakdown of current conditions:

Poland

Currently, Raiffiesen Bank have stated they will be pulling lending to non-Polish residents. There is no indication of when this decision might be reversed.

Both Noble Bank and PKO Bank are still offering mortgage products to non-residents, however, and Property Secrets clients are currently using the London branch of PKO.

Czech & Slovak Republics

The Credit Crunch does not currently seem to be affecting the Czech market at all and this, it seems, is down to the fact that non-resident loans currently account for just 3% of overall bank lending in the country.

Again, the Slovak mortgage market appears equally unaffected with banks still willing to lend to non-residents.

Bulgaria

The latest information we have from Bulgaria is that there are currently no issues with lending to non-residents and we have an agreement in place that should this look like changing we will be informed immediately.

Incidentally, we have had a number of queries from clients regarding the fees charged by our recommended partner Bulgarian Home Loans. We asked them to respond and explain their charges.

You can download their in-depth response here: Bulgarian Home Loans Fees Explained

Romania

Due to Regulation 11, imposed by the Romanian National Bank, commercial banks had to re-submit their credit norms at this same National Bank. One by one the Romanian National Bank has been signing off the approval of each bank's credit regulations since the beginning of October, and in only one particular case a certain Romanian bank has decided to put on hold non-resident financing. This, of course, does not mean other commercial banks will do the same, and we are awaiting the newly approved credit regulations of other Romanian banks who will include non-resident financing

We have been in constant talks with our partners on the ground, as well as several banks, and there is good news on the way.

New credit norms will be issued by the Romanian National Bank this month and banks are already preparing new lending criteria and products. We will have all the details later this week and will announce them as soon as they come in.

In the meantime, we have been looking at additional brokers as recommended by our members. The feedback we're getting is positive and we're moving in the right direction with these brokers. We'll update you as soon as we can on this too.

In the meantime, please feel free to call us with any questions regarding finance you may have.

Property Secrets' Head of Legal & Business Affairs, Debbie Le Goff, was recently in Prague, Czech Republic, meeting with mortgage brokers, lawyers and other related companies. Here, Debbie describes what she found on her latest visit to the country...

The first thing that struck me about Prague this time round - and I am a regular visitor - was the sheer number of tourists from all over the world. The city's attraction continues to grow and it is quite a site to see groups following that single person with an umbrella held in the air. I was almost tempted to buy an umbrella hold it up in the air and see if anyone followed me!

The mortgage market in the Czech Republic remains the most advanced in Central & Eastern Europe with, as Star Capital Finance were keen to remind me, 100% Loan To Value (LTV) mortgages available.

The problem for investors, however, remains that there is still a tendency for banks to give a lower valuation to properties. So even if you obtain 100% LTV, this is likely to become around a 80% to 90% LTV.

Of more interest to investors was a meeting I had with Younique, a new company started by Martin Benik who worked for companies.cz, who enable the formation and registration of Czech companies online.

Younique claim to have a new way in which clients can obtain the EU Card without travelling to Prague. I am waiting for in-depth information concerning this.

The whole EU Card process with Younique is in the region of £1,800, which includes the application costing around £600. If you take into account the cost of travel to Prague, accommodation and food then you meet the £1,200 rate.

Highland Trust, who offer mortgages in Poland, Czech and Romania, were another company I met with, looking to expand the options open to Property Secrets clients - in the Czech Republic and also in Romania.

In addition to expanding the number of finance options available, I also met with a lawyer to discuss possibly increasing the legal options you can choose from. More on this in the future.

The market picture that I was given by all the parties I met was that it is anticipated that property prices will continue rise for about two more years before they start to settle.