Burden on Home Buyers: Construction Interest Rates Rise Rapidly

Status: 04/12/2022 2:53 p.m.

Comparison portals have recorded the biggest increases in mortgage interest rates in years. This is making it increasingly expensive to buy your own living space or build a home – especially as real estate prices continue to rise.

Buying condominiums or houses with credit financing is becoming more and more expensive. Mortgage interest rates are climbing faster than many experts thought.

“We expect mortgage interest rates for ten-year financing to reach 3% during the summer months,” says Max Herbst, founder of FMH Finanzberatung in Frankfurt. Experts did not expect an increase of this magnitude before the end of the year. However, the market has already completed this bullish move.

Interest rates have already doubled

According to the FMH, the average interest rate on standard ten-year loans is currently 2.12%. This is more than double the level of interest rates last December. Five months ago, the comparative interest rate was 0.9%. This means that interest rates for construction loans have jumped the highest since 1999. At that time, however, the interest rate was between 5 and 6% for loans with ten years. .

The real estate financier Interhyp also determined the same upward movement. Interhyp expects construction interest to rise further to 2.5-3% for ten-year loans by the end of the year. According to a recent report, in March such funding increased by about 0.5 percentage points from the previous month.

Inflation puts central banks under pressure

The main reason for the large increases in interest rates is the general increase in interest rates in Germany and the whole euro zone. The ten-year federal bond yield climbed to 0.84% ​​today, the highest level since mid-2015. Construction interest rates are based on federal bond yields.

However, the rapid increase in mortgage interest for real estate financing is also an indirect consequence of inflation rates in Germany and Europe. The Federal Statistical Office today estimated the price increase for March at 7.3% compared to the previous year – and thus confirmed a first estimate. Rising inflation is pushing central banks in Europe and the United States to tighten their accommodative monetary policy. The US Federal Reserve kicked off the interest rate reversal in March with a first key rate hike, with experts anticipating several steps over the course of the year. At its interest rate meeting on Thursday, the European Central Bank (ECB) is under pressure to introduce monetary policy measures to bring inflation under control.

Buyers in difficulty

In recent years, low real estate financing interest rates have allowed buyers or builders to secure financing despite rising condo or home prices. Now, this phase seems to be coming to an end. But while financing one’s own home is becoming significantly more expensive, there does not seem to be any sign of a reversal in the trend of property prices in Germany. In 2021, residential real estate prices rose by an average of eleven percent nationwide – the Federal Statistical Office even reported a record increase for the last quarter. And even in 2022, there is still no “housing bubble burst” in sight.

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