If you want to buy a property, you have to reckon with significantly higher interest rates again. The interest rates for ten-year financing have again climbed above the four percent mark, as shown by data from the Frankfurt FMH financial consultancy and the credit broker Interhyp. After an interim low of a good 3.5 percent in January, interest rates for such loans rose again noticeably and reached their highest level since October, when they had previously been just over four percent. With the banking crisis in the USA, however, experts see significant fluctuations.
According to Interhyp, the interest for loans with a ten-year fixed interest rate was 4.05 percent at the beginning of the week. “For the current year, we expect strongly fluctuating interest rates in a corridor between three and four percent, briefly also above that, as is the case at the moment,” said Mirjam Mohr, board member for private customer business.
Five percent by the end of the year is realistic
FMH-Finanzberatung also sees interest rates for ten-year loans at just over four percent, but expects significantly more upward pressure. “Five percent by the end of the year is not a pessimism, but a realistic forecast,” says founder Max Herbst.
The prospect of further interest rate hikes by the major central banks in the fight against high inflation have pushed interest rates on the capital markets up. At the end of February, the yield on ten-year government bonds, on which building interest rates are based, had risen to its highest level since 2011. When the European Central Bank decides on interest rates this Thursday, observers are firmly expecting the next rate hike.
A significant slowdown in inflation is not in sight, says Herbst. “As long as inflation hardly falls, the pressure on Bunds will remain high.” High wage agreements in collective bargaining rounds also caused prices to rise. Only when inflation is under control are construction interest rates likely to fall again significantly. Autumn sees the end of the age of extremely cheap real estate financing with low interest rates.
The real estate boom has stopped for the time being
At least in the short term, however, there is some relief for real estate buyers, because the yields on ten-year federal bonds have recently fallen sharply with the banking crisis in the USA. “The first banks have reacted to this and lowered mortgage interest rates again,” said Ingo Foitzik, Managing Director of mortgage lending at the comparison portal Check24. He expects further sharp interest rate cuts this week before construction loans should become more expensive again in the coming months with further interest rate hikes by the ECB.
The rapid increase in building interest rates since the beginning of last year has made financing enormously expensive and stopped the property boom that has lasted for years – the prices for apartments and houses have fallen slightly on average. For comparison: In January 2022, real estate buyers could still take out ten-year financing at less than one percent interest per year. The poorer conditions mean that the monthly installments for interest and repayment are hundreds of euros higher than before, which makes buying real estate unaffordable for many people.
The rise in interest rates is also making itself felt in the mortgage lending business, which has slumped since last spring. In January, new business with mortgage loans, including extensions, was 12.7 billion euros according to data from the Deutsche Bundesbank – almost half less than in the same month last year. Analysis firm Barkow Consulting commented that this was the weakest start to the year since the time series began in 2003.
