Since the rise in interest rates, many people can no longer afford to buy property. Building interest rates have now leveled off at well over four percent – and experts believe they could still rise.
According to experts, there is little relief in sight given the sharp increase in loan interest rates for property buyers and builders. “A fundamental relaxation in building interest rates is not foreseeable,” says Max Herbst, founder of the Frankfurt-based FMH financial consultancy.
Even if the credit conditions are currently fluctuating noticeably due to speculation on the bond markets, he expects “building interest rates to rise slightly” by the end of the year. “I don’t see any tendency for building interest rates to fall by 0.5 percentage points again – in any economic scenario.”
There is a danger in a new escalation of the Middle East conflict, which could drive up oil prices and inflation and make key interest rate cuts by the European Central Bank even more distant.
Fallen real estate prices
According to data from FMH, interest rates for ten-year mortgages averaged 4.25 percent per year on Monday. At the beginning of October, building interest rates had once again climbed above the four percent mark to a twelve-year high. The rise in interest rates is considered the most important reason for the fall in real estate prices, as it makes financing more expensive.
However, significantly higher interest rates can also be observed on loans with a high loan-to-value ratio of 90 percent, says Herbst. “Around a third of the banks then charge more than 5 percent.” For comparison: In January 2022, property buyers were still able to take out financing with a ten-year fixed interest rate at an interest rate of less than one percent.
Series of key interest rate increases
But with the war in Ukraine and the jump in energy prices, inflation rose sharply – major central banks responded with a series of key interest rate increases. The European Central Bank paused last week after 10 hikes in a row, but made it clear that any discussion about rate cuts was “completely premature.”
The construction financing broker Interhyp expects interest rates for ten-year loans to remain at around 4 percent and to remain at a similar level to the current level until the end of the year. “The ECB’s recent decision not to raise the key interest rate any further also indicates this,” says Mirjam Mohr, board member for private customer business.
Tomas Peeters, CEO of Baufi24, sees upward pressure. “The 5 percent mark for loan interest rates is becoming more and more sensitive, especially for long-term financing with a high loan-to-value ratio.” The following also applies to real estate applicants: “It’s not worth waiting; in the worst case scenario, purchasing a home will be even more expensive,” he says.
Source: Stern
