Status: 04/12/2022 14:53
Comparison portals have recorded the steepest rises in mortgage interest rates in years. This makes it increasingly expensive to buy your own living space or build a house, especially as real estate prices continue to rise.
Buying condominiums or houses with credit financing is increasingly expensive. Mortgage interest rates are rising faster than many experts thought.
“We expect mortgage interest rates for ten-year financing to rise to three percent in the summer months,” says Max Herbst, founder of FMH Finanzberatung in Frankfurt. Experts did not expect an increase of this magnitude until the end of the year. However, the market has already completed this move higher.
Interest rates have already doubled
According to FMH, the average interest rate for standard ten-year loans is currently 2.12 percent. This is more than double the level of interest rates since last December. Five months ago, the comparative interest rate was 0.9 percent. This means that interest rates on construction loans have jumped the highest since 1999. At the time, however, the interest rate was between five and six percent for ten-year loans.
The real estate financier Interhyp has also determined the same upward movement. Interhyp expects a further increase in construction interest to 2.5 to 3 percent for ten-year loans by the end of the year. According to a recent report, in March such financing increased about 0.5 percentage point from the previous month.
Inflation puts central banks under pressure
The main reason behind the significant interest rate increases is the general increase in interest rates in Germany and throughout the euro zone. The 10-year federal bond yield rose to 0.84 percent today, the highest level since mid-2015. Construction interest rates are based on federal bond yields.
However, the rapid increase in interest on loans for real estate financing is also an indirect consequence of the inflation rates in Germany and Europe. The Federal Statistical Office today calculated the increase in prices for March at 7.3 percent compared to the previous year, thus confirming an initial estimate. Rising inflation is putting pressure on central banks in Europe and the US to tighten their loose monetary policy. The US Federal Reserve initiated the change in trend in interest rates in March with the first increase in key interest rates and experts expect several steps throughout the year. At its interest rate meeting on Thursday, the European Central Bank (ECB) is under pressure to introduce monetary policy measures to control inflation.
In recent years, low interest rates for real estate financing have made it possible for buyers or builders to obtain financing despite rising condo or home prices. Now this phase seems to be coming to an end. But while the financing of the living space itself is becoming significantly more expensive, there seems to be no sign of a turnaround in property prices in Germany. In 2021, residential real estate prices increased by eleven percent on average across the country; the Federal Statistical Office even reported a record increase for the last quarter. And even in 2022 a “housing bubble burst” is still not in sight.