Finances: interest rates are rising – buying real estate is becoming even more expensive

If you want to buy a house or an apartment, you have to be prepared for even higher interest rates on loans.

Although interest rates have risen sharply within a short period of time, experts are expecting further premiums over the course of the year, which should have a painful impact on loan installments. Nevertheless, they warn against hasty contracts.

“We expect mortgage interest rates for ten-year financing to rise to three percent in the summer months,” said Max Herbst, founder of Frankfurt-based FMH Finanzberatung, on Tuesday. He had actually not expected this jump until the end of the year. “But at the moment the upward trend cannot be stopped.”

According to FMH, the average interest rate for ten-year standard loans is currently 2.12 percent. For comparison: In December it was still 0.9 percent. Herbst spoke of the “strongest increase since 1999”. At that time, interest rates between May and October – at a much higher level – climbed from 5.1 to 6.4 percent.

The Munich real estate financier Interhyp also expects interest rates to rise further. “We consider 2.5 to 3 percent realistic for ten-year loans by the end of the year,” said Mirjam Mohr, board member for private customer business at Interhyp. In March alone, such financing had become more expensive by 0.5 percentage points.

Many experts had expected an increase in construction interest rates, but not so quickly. The reasons are the skyrocketing inflation and the generally rising interest rate level on the capital markets. On Tuesday, the yield on ten-year federal bonds climbed up to 0.84 percent – a high since mid-2015. The building interest rates are based on federal bonds. Herbst also believes banks are applying tighter regulations from financial regulators to lending conditions to combat excess housing activity.

Because of the high inflation in Europe and the USA, the central banks are under pressure to tighten their loose monetary policy. The US Federal Reserve initiated the turnaround in interest rates in March with a first interest rate hike, experts expect several steps this year. This causes interest rates on the stock exchanges to rise. The European Central Bank (ECB) is also under pressure at its interest rate meeting on Thursday. Above all, high energy prices are driving inflation, and there are also the consequences of the Ukraine war. In Germany, the inflation rate was 7.3 percent in March.

Bitter for savers: While loans are becoming more expensive, bank deposits continue to yield no interest or are even charged negative interest. Recently, some banks have announced an end to negative interest rates as soon as the penalty interest on bank deposits at the ECB is lifted.

The increase in construction interest has already made financing significantly more expensive, reports the intermediary Dr. Small. Real estate buyers are increasingly choosing longer fixed interest rates of 13 years and ten months, it said. The credit broker Baufi24 also refers to forward loans, with which property owners can secure the interest for follow-up financing up to five years in advance for a surcharge.

“Anyone who needs a loan should prepare early, compare conditions now and calculate the effects of a further rise in interest rates for themselves,” advises Interyhp expert Mohr. She recommends a rather higher initial repayment and longer fixed interest rates.

FMH founder Herbst advises real estate buyers not to conclude contracts hastily for fear of poorer conditions. With a loan of 400,000 euros, an interest rate increase of 0.25 percentage points would mean higher costs of 1,000 euros per year and 10,000 euros over ten years, he calculates. A lot of money though. But before the conclusion, the careful decision for a property must be made. “An incorrectly selected property can cost me a lot more.”