Interest rates in Germany are rising sharply again. A mortgage loan with a fixed interest rate of ten years usually costs over four percent. That is 0.5 percentage points more than in January.
The banks are thus pricing in the ECB’s announcement that it will raise key interest rates again this Thursday by 0.5 percentage points.
“Five percent by the end of the year is not a pessimism, but a realistic forecast,” says the founder of FMH Finanzberatung Max Herbst.
If you want to finance a property, you have to reckon with significantly increased building interest rates. Mortgage interest rates for ten-year financing have currently climbed above the four percent mark. This is shown by data from FMH financial advice and the credit broker Interhyp. After an interim low of a good 3.5 percent in January, interest rates rose again noticeably and reached their highest level since October, when they had previously been just over four percent.
With the jump in construction interest rates, many banks are pricing in the announcement by the European Central Bank (ECB) that it will raise key interest rates for the euro zone again by 0.50 percentage points this Thursday.
According to Interhyp, the interest rates for mortgage loans with a ten-year fixed interest rate were 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.
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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 rate hikes by the big central banks in the fight against high inflation have driven up interest rates on the capital markets. 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. With the interest rate decision by the European Central Bank this Thursday, observers are firmly expecting the next key rate hike.
The time of low interest rates is over
A significant slowdown in inflation is not in sight, says Herbst. “As long as inflation hardly falls, the pressure on federal bonds will remain high.” And thus also on construction interest rates. High wage agreements in collective bargaining rounds also caused prices to rise. Only when inflation is under control are mortgage rates likely to fall again. Herbst believes that the age of extremely cheap real estate financing with low interest rates is over.
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. As a result, building permits for apartments plummeted, especially for one- and two-family houses.
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.
dpa/RO
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