Financial Services

Understanding the Dynamics of Interest Rates and Mortgage Trends

Heider — Thu, 09 May 2024 09:08:47 +0000

Understanding the Dynamics of Interest Rates and Mortgage Trends

Dear Clients,

I hope this message finds you well.

I wanted to take a moment to shed some light on the recent developments in interest rates and mortgage trends, particularly in light of the actions taken by the Czech National Bank and their impact on the mortgage market.

You may have noticed that despite the Czech National Bank lowering interest rates, mortgage rates have not seen a corresponding decrease. It’s crucial to understand that this is not due to any malice on the part of banks, but rather a result of the distinction between short-term and long-term interest rates. The Czech National Bank influences short-term interest rates, but mortgages, such as a 5-year fixed rate, are tied to long-term (e.g., 5-year) interest rates. And short-term rates differ from long-term rates. For example, six months ago, short-term rates were 7%, but mortgages were offered at 6%. And 5-year government bonds yielded only 4.4%. Investors expected inflation to be tamed and the Czech National Bank to reduce interest rates gradually. That’s why they borrowed at 4.4% for 5 years. Over the past year, long-term interest rates have also declined. That’s why mortgage rates have also fallen. A year ago, mortgages (according to the Hypoindex) were at 6.27%, and now they are at 5.57%. However, the decline in mortgage rates has stopped, and some banks have even increased mortgage rates. The reason is the rise in the prices of resources. 5-year interest rates are 0.7 percentage points higher compared to February 2024.

Source: https://www.penize.cz/dan-z-nemovitosti/449827-pozor-na-zmeny-dane-z-nemovitosti-garaz-chalupa-i-pronajem-domu

The yields of government bonds also influence the value of bond funds. A rise in yields over the last 3 months means a decline in bond prices. (We’ll talk about that next time). When deciding on a mortgage, don’t speculate on a decrease in interest rates, and don’t rely on the fact that interest rates must fall. The mechanism of rates is more complex and cannot be described by the assumption: Inflation will be tamed – the Czech National Bank will lower rates – and mortgages must be cheaper. It may not happen, or not right away. If you’re considering a new mortgage or your existing mortgage’s fixation period is ending, please feel free to reach out to me. I’m here to assist you in determining the optimal term and duration of the fixed interest rate.

If you’re curious about the behavior of financial markets last month and the underlying reasons, please continue reading.

At its April meeting, the Federal Reserve decided to keep interest rates at their current level. The Fed is waiting for inflation to approach its 2% target more rapidly. The slow fight against inflation is a mild disappointment for financial markets, as more successful inflation management and faster interest rate cuts were expected. In response, global stock markets saw a decline of 3.3% in USD and 3.1% in CZK. However, this decline was not significant, as stock markets simply returned to the level they were at during March.
In the Czech market, inflation is being successfully reduced. Last month, year-on-year inflation was 2%, and prices rose by only 0.1% month-on-month. Therefore, the Czech National Bank lowered interest rates by half a percentage point to 5.25%.

—

Monika Souza, DiS., EFA
V.I.P. Senior Consultant VII
Partners Financial Services, a.s.
Nové sady 2, 6.p.
602 00 Brno

Beautiful pre-Christmas day, dear friends and clients,

Heider — Wed, 09 Aug 2023 16:48:19 +0000

Beautiful pre-Christmas day, dear friends and clients,

elebrational and motivational Christmas wishes would be difficult and inappropriate to write after the tragedy on Palach Square, so I will not even try. Yet (and maybe more), it is necessary to appreciate what we have. I want to wish you all a beautiful Christmas, a peaceful and relaxing holiday in the circle of your loved ones, and not only a successful entry into the New Year but the whole year mainly of GOOD HEALTH, satisfaction, and positive energy so that we enjoy life, family, and work (even in times when it is not all going smooth and sometimes even terrible things are happening). I believe that by spreading positive energy, inspiring others, enjoying life, and helping people who need it, we will contribute every little bit to make the world a little better. This tragedy showed us the other side of life so we can appreciate the positive side and fight for it. Let’s honor the tragedy victims and their families (we can also contribute here: https://www.darujme.cz/sbirkaffuk) and wish the injured an early recovery.

Now let’s go to see what happened in the markets.

In November, shares grew again, this time significantly. World shares (measured in CZK) grew by 4.9 %, and stocks, bonds, and gold increased. Shares are at their maximum. Over the last three years, they were rarely higher. The asset value growth is due to investors’ expectations of a decline in interest rates. Inflation worldwide (USA, Europe, and the Czech Republic) is decreasing, so banks will not have to increase interest rates further, but they are talking about their reduction. Lower rates help the economy’s growth, stock prices, and bond prices.

In November, the Chamber of Deputies passed a law that expands and complements the possibilities of savings for old age, the so-called “Long-term investment product” (in Czech, “Dlouhodobý investiční produkt“ or DIP). It is briefly said that tax savings will be possible for Supplemental pension plans (in Czech DPS), life insurance, and other products. Moreover, the limits for tax savings should significantly increase. The law has not yet come into force, we are waiting for approval by the Senate and the President’s signature. However, I want to inform you in advance because after the law is approved, the wave of intensive information campaigns will be pulled off by the product’s creators, sellers, and media. If you are interested in the product, do not be blinded by the vision of the tax savings! It is necessary to consider whether the product is suitable for you carefully and in what version. The choice of investment strategy, the so-called strategic allocation, is far more important than tax savings! It is even more important than the amount of entry fees or the cost of funds. The graph below compares the investment in bonds and purely in shares. It can be seen that by choosing an incorrect strategy, the client can lose millions. Compared to the maximum tax savings in DIP (CZK 216,000 for 30 years of savings), this is an incomparably more significant loss/profit.

If you are thinking about using DIP for yourself, please feel free to contact me. The right strategy and setting of DIP in the financial plan can mean millions for you.

Thank you all for your support and trust in me in 2023. It was a turning point for me because, in November, I won the prestigious title EFA (European Financial Advisor), which owns only 1% of all financial advisors in the Czech Republic. I will continue to bring you quality services, complexity, and expertise at the highest level.

Merry Christmas.

Sincerely,

Monika Souza, DiS., EFA
V.I.P. Senior Consultant VII
Partners Financial Services, a.s.
Nové sady 2, 6.p.
602 00 Brno

Supplementary Pension Plan (DPS) vs Long-Term Investment Product (DIP)

Heider — Wed, 09 Aug 2023 16:45:25 +0000

Supplementary Pension Plan (DPS) vs Long-Term Investment Product (DIP)

I have prepared for you a reflection on the new state product. This important information will be beneficial for you.

The DIP (Long-term Investment Product) is discussed everywhere.

The day will not run away if we do not encounter an article about the long-term Investment Product (DIP) in the media. DIP is based on long-term regular investments. Therefore, let’s remember how regular investment works and see what a regular investment in stock markets would look like in the past.

With a short-term investment (1-3 years), profit from regular investment was uninteresting. It did not help to get rich in any way. Capital gains in investment for 10 years have already been more than half of their deposits. With a regular investment of CZK 5,000 per month, we invested 600 000 CZK in total, and the capital profit was CZK 374,000. Capital gains in investing for 15 or 20 years exceeded their deposits

The Supplementary Pension Plan (in Czech, called DPS) is also about regular investments. So what makes DIP “better”? DIP allows you to invest in various financial products that can offer potentially higher appreciation, obtain tax relief, and allow contributions from the employer.

You can’t compare the total amount, but the effective interest! If we use an example of 1000 CZK for 20 years and an expected appreciation of 5%, the effective interest in this case will be higher for DIP.

But if we just change the parameters of the investment slightly, the result will be different. The tax deduction helps DIP and is more important for shorter contracts (10 years). For longer horizons, capital gains are crucial; tax savings are insignificant.

Parameters of DIP say that the contract must last at least 10 years and at least until the age of 60. The money deposited in DIP cannot be withdrawn prematurely. You would lose tax benefits and have to pay back the tax. When choosing DIP as a product to build assets for your retirement, the tax savings are not the most important; the properties of regular investment and the selection of a suitable product are. It is necessary to look primarily at the costs and the correctly chosen strategy allocation. It has more power than tax deductions and decides what volume of money you will have in your portfolio at the end! Properly set DIP can significantly help build assets for your retirement and financial independence.

For expats who are not 100% sure if they will stay in the Czech Republic until the age of 60, it is important to carefully consider whether you want to “lock” your investment in DIP. Instead of DIP, you can use the same investment (without a state contribution in the form of a tax deduction and employer’s contribution) and have money available at any time, with premature withdrawals possible. I highly recommend that you consult your situation with a financial specialist who understands DIP and its pros and cons and will help you set the portfolio for your retirement optimally.

—

Monika Souza, DiS., EFA
V.I.P. Senior Consultant VII
Partners Financial Services, a.s.
Nové sady 2, 6.p.
602 00 Brno

Important Update: Changes in Real Estate Tax and Year-End Investment Insights 🏡💼

Heider — Wed, 09 Aug 2023 16:32:36 +0000

Important Update: Changes in Real Estate Tax and Year-End Investment Insights

Dear friends and clients,

With the new year’s arrival, I wish you all good health, work and personal success, and happy moments you will remember with love.
In today’s email, I want to inform you about changes in the tax on real estate property that are already in effect. Let’s look at it. It’s called a real estate tax, and it is unique among Czech taxes in that it is paid in advance. The deadline for submitting a tax return for property tax is January 31, 2024; property tax must be paid by the end of May or in two installments by the end of May and November. The real estate tax form is filled in only once a year after the acquisition of the real estate; in other years, the tax office only assesses the tax. A real estate tax return is re-submitted when the circumstances affecting the tax calculation change. This year, however, an exception awaits owners of some properties: they will have to submit a tax return even if nothing has changed. Newly, for taxation purposes, it will be decisive how the building is registered in the real estate cadaster, not for what purpose it is used. The property tax rate will increase by approximately 80% from January 2024.

Source: https://www.penize.cz/dan-z-nemovitosti/449827-pozor-na-zmeny-dane-z-nemovitosti-garaz-chalupa-i-pronajem-domu

How do you fill out a real estate tax return? The Financial Administration recommends filing the real estate tax return electronically via the Electronic Filing for the Financial Administration (EPO) application on the mojedane.cz website. If you need help with the tax return, contact a tax advisor or accountant (or me; I will send you a contact).

We are behind in the year 2023. What did it bring in terms of investments?

We entered 2023 with high inflation, which the central banks tried to suppress with high-interest rates. There was uncertainty in the market about whether the treatment of inflation would be managed and whether high-interest rates would not dampen the economy, which could fall into recession.

At the end of 2023, inflation started to decline, and it looks like the treatment of high inflation was successful. (At least for now.) That’s why central banks are starting to cut interest rates and intend to continue in 2024.

Stock markets have had a successful year and are growing. World stocks rose 21.5%. Thus, they erased the losses from 2022 and got close to their historical highs. We haven’t seen stock markets at their highs for 2 years. However, market peaks are nothing special. In the past, this happened quite often. After reaching historical highs, markets behave much like they do in regular times. Furthermore, they can grow and fall, mostly in long-term growth. Have you ever heard someone say, “The markets are too high; they have to fall! I’ll wait for a drop and then start investing.” Such a strategy is wrong and dysfunctional. You can’t time the market :).

The chart shows that the stock markets mostly continued to grow after reaching their maximum. Mostly, but not always. Of course, they can go either way.

We do not invest in stocks based on whether they are at their peak but on whether we need them in the portfolio. This comes from the financial plan and the long-term strategy.

If you need help setting up a strategy, don’t hesitate to contact me.

—

Monika Souza, DiS., EFA
V.I.P. Senior Consultant VII
Partners Financial Services, a.s.
Nové sady 2, 6.p.
602 00 Brno

Financial Services

Understanding the Dynamics of Interest Rates and Mortgage Trends

Understanding the Dynamics of Interest Rates and Mortgage Trends

Beautiful pre-Christmas day, dear friends and clients,

Beautiful pre-Christmas day, dear friends and clients,

Supplementary Pension Plan (DPS) vs Long-Term Investment Product (DIP)​

Supplementary Pension Plan (DPS) vs Long-Term Investment Product (DIP)​

Important Update: Changes in Real Estate Tax and Year-End Investment Insights 🏡💼

Important Update: Changes in Real Estate Tax and Year-End Investment Insights

Supplementary Pension Plan (DPS) vs Long-Term Investment Product (DIP)

Supplementary Pension Plan (DPS) vs Long-Term Investment Product (DIP)