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Czech central bank tightens mortgage rules, increases bank buffer

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Czech central bank tightens mortgage rules, increases bank buffer

The Czech central bank has introduced new rules for mortgage lending and increased countercyclical buffer requirements for banks as it looks to mitigate risks in the country's property market.

Property prices in the Czech Republic increased at the fastest rate in the EU for most of 2017, the central bank said, as it announced measures to cool the market.

It has raised the countercyclical buffer rate to 1.5%, effective July 1, 2019, although it said if risks abate the buffer will be immediately lowered or released fully. The buffer, which was raised to 1% from 0.5% in July 2017, requires banks to put aside capital while the economy is strong so they have deep reserves in more troubled times.

Meanwhile, the central bank will include income requirements in its mortgage lending recommendations from Oct. 1. Mortgage borrowers' debt should not be more than 9x their annual net income, and they should not spent more than 45% of their net monthly income on debt repayments.

The central bank said risks associated with the growth of mortgages had increased, as had the potential for banks and customers to underestimate risks.

However, it added that developments in the Czech financial sector over the past year have been favorable, and that banks remain "highly resilient" to potential negative shocks including a deep recession.