Status: 04/12/2022 2:53 p.m
Comparison portals have recorded the sharpest jumps in interest rates for mortgage loans in years. This makes it more and more expensive to buy your own living space or to build a house – 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 pundits 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 had not expected an increase of this magnitude until the end of the year. However, the market has already completed this upward movement.
Interest rates have already doubled
According to FMH, the average interest rate for ten-year standard loans is currently 2.12 percent. This is more than double the level of interest rates from last December. Five months ago, the comparative interest rate was 0.9 percent. This means that interest rates for construction loans have made the highest jump since 1999. At that time, however, the interest rate was between five and six percent for loans with a ten-year term.
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 rose by around 0.5 percentage points compared to the previous month.
Inflation puts central banks under pressure
The main reason behind the significant interest rate increases is the generally rising interest rate level in Germany and the entire euro zone. The yield on ten-year federal bonds has climbed to 0.84 percent today, the highest level since mid-2015. The construction interest rates are based on the yields on federal bonds.
However, the rapid increase in loan interest for real estate financing is also an indirect consequence of the inflation rates in Germany and Europe. The Federal Statistical Office today put the increase in prices for March at 7.3 percent compared to the previous year – and thus confirmed 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 turnaround in interest rates in March with the first key interest rate hike. Experts expect several steps in 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 get inflation under control.
Buyers in trouble
In recent years, low interest rates for real estate financing have made it possible for buyers or builders to obtain financing despite rising prices for condominiums or houses. Now this phase seems to be coming to an end. But while the financing of one’s own living space is becoming significantly more expensive, there does not seem to be any sign of a trend reversal in property prices in Germany. In 2021, the prices for residential real estate increased by eleven percent on average nationwide – the Federal Statistical Office even reported a record increase for the final quarter. And even in 2022 there is still no “bursting of a real estate bubble” in sight.