Payment holidays, credit risk, and borrower-based limits: Insights from the Czech mortgage market

This paper examines the design and outcomes of mortgage payment holidays introduced during the COVID-19 pandemic. The Czech Republic provides a useful setting, combining a broad legislative moratorium with a subsequent, eligibility-based bank moratorium. Using confidential loan-level data, we document that legislative moratoria were used mainly as a precautionary liquidity tool, while bank moratoria were accessed predominantly by higher-risk borrowers. A central contribution of the paper is to provide loan-level evidence on mortgage performance after these programs ended. We find that arrears rose only moderately once repayments resumed, though the increase was noticeably larger for bank-moratoria borrowers, reflecting their weaker risk profiles. We further show that stricter borrower-based regulations (LTV, DTI, DSTI) in place before the pandemic were associated with lower moratoria uptake and reduced post-moratoria arrears. The results illustrate how the interaction between program design and pre-existing regulation shaped both the use of payment holidays and their credit-risk implications.