Real estate interest and construction costs: Why building a house will be more expensive in 2022

Anyone who had hoped that the boom in property prices would ease somewhat in 2021 was bitterly disappointed. Demand remained high, interest rates low – and there was even another price driver: building materials became scarce and therefore more expensive.

A recent survey by the credit broker Interhyp shows how much this affects private builders. Three out of four customers surveyed who took out construction financing through the provider last year stated that they were hit hard or very hard by the explosion in construction costs. Most report that their construction project has become 10 to 20 percent more expensive, and one in four had to accept even greater cost increases.

House builders had to dig deeper into their pockets, especially for wood; to a lesser extent, the shortages were also felt in insulation material and glass. More than one in two reports that construction phases were delayed due to delivery bottlenecks. And almost half say they will for the time being completely forego certain projects such as garage, carport, solar system or fireplace for cost reasons.

2022 will be more expensive

The trend, which is unpleasant for builders, is likely to continue in the new year. “We expect that the price spiral will initially continue to turn upwards in 2022”, says Mirjam Mohr, Interhyp board member responsible for private customer business. And the construction industry itself expects it to be more expensive. “There is no all-clear, construction prices will continue to rise,” said Reinhard Quast, President of the ZDB building trade association, recently to the DPA. According to Quast, rising energy prices make steel and concrete more expensive, and the increase in the statutory minimum wage is causing higher wage costs, and many skilled workers in construction are scarce anyway.

How much will interest rates rise?

In addition to the construction costs, it is also important to keep an eye on interest rates. Most experts anticipate that real estate loans, which are still very cheap, are likely to become more expensive this year. “The increase in building interest rates, which has recently been slowed down by the new Corona uncertainties, will pick up speed again in the course of the coming year – especially when the incidences decrease again in spring and there is more security and confidence in the economic development,” says Interhyp- Board member Mohr.

At the beginning of the year, Interhyp surveyed ten credit institutions and they all expect real estate rates to rise this year. The interest rate for a ten-year real estate loan is currently around one percent, around 0.3 percentage points more than a year ago. For 2022 Mohr expects “a slight but noticeable increase in building interest in the range of several tenths of a percentage point”. Michael Neumann, head of mortgage lender Dr. Small. And Max Herbst from FMH-Finanzberatung anticipates that construction financing will be 0.25 to 0.5 percentage points more expensive in 2022.

Pay attention to running times and deadlines

In order to benefit from the currently favorable conditions, experts currently advise property buyers to take loans with long fixed interest periods of 15 to 20 years. During this period, borrowers are safe from rising interest rates.

In view of possible delays in the construction project, builders should also pay attention to a further deadline: the interest-free period. This is the period in which the bank has an agreed loan ready to call without charging additional interest. “We are now seeing that twelve months are often not enough and, depending on the building project, even recommend up to 24 months if the banks support this,” says Interhyp manager Mohr.

The biggest hurdle for real estate buyers and house builders remains to be able to raise enough equity in order to be able to pay the enormous prices in many places.