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Settlement in Holzgerlingen in Baden-Württemberg: dream of owning your own home is becoming more and more expensive
Photo: Werner Dieterich / Westend61 / IMAGO
Anyone who wants to build or buy a house in these times is in a double bind.
Because prices have been rising for years, both for finished houses and for craftsmen who build them.
And while one could console oneself for a long time with the fact that at least the lending rates are low, that is less and less true.
No April Fool's joke: "According to our data, the base interest rate exceeded the two percent threshold on April 1," says Max Herbst from the Frankfurt financial consultancy FMH - and the value keeps moving up.
Herbst states: »We are right in the middle of the turnaround in interest rates.«
"In March alone, ten-year loans rose by around 0.5 percentage points," says Mirjam Mohr, board member at the credit broker Interhyp: "Since the beginning of the year, the conditions have more than doubled, from one to over two percent."
»The fact that interest rates were rising so quickly so quickly was unexpected for the market.«
Mirjam Mohr, Interhyp
This is an important clue: Even if Russia's war against Ukraine is currently the focus of public interest, it is not the trigger for the interest rate turnaround.
The price increase started last year.
"Many people had predicted that construction interest rates would rise," says Mohr.
Only: "The fact that they rose so quickly so quickly was unexpected for the market."
Three percent possible by the end of the year
The main reason is inflation, says Herbst, and it was already 5.3 percent in Germany at the end of 2021, well above the target value of the European Central Bank (ECB), which considers two percent desirable.
But that also means that even in the unlikely event that the war ends tomorrow, prices would probably continue to rise for the time being.
Interhyp asks experts every month about their forecast for the rest of 2022. "We think 2.5 to 3 percent for ten-year loans by the end of the year is realistic," says Mohr.
This increases the time pressure for credit customers again: who knows how long you can borrow money so cheaply?
Certainly, before the European Central Bank (ECB) swung into its longstanding policy of cheap money, lending rates were significantly higher.
But real estate used to cost less.
Now think about follow-up financing
"Nevertheless, I can only advise every home buyer not to be rushed," says FMH expert Herbst.
"No one gets anything from a bad property, even if the interest rate was low." In any case, it's a good idea to seek offers from several banks at the same time.
Interest rates are always on the move (mostly upwards), so is the real estate market, and when the approval for your dream home comes late, you don't want to be left without financing just because an offer period has expired.
more on the subject
Crisis in Eastern Europe: War is driving inflation - how to protect your money A column by Hermann-Josef Tenhagen
Higher interest rates and horrendous purchase prices: Why hasn't the real estate bubble burst yet?By Henning Jauernig
But not only new real estate is affected by the turnaround in interest rates.
Anyone who has already paid off a house and will soon need follow-up financing should consider taking action now.
One option is debt restructuring, i.e. replacing the current loan with a new one.
However, the previous bank then demands a prepayment penalty, and that can be expensive.
If it's all about the lower interest rate, the bank doesn't have to release anyone from the current contract.
On the other hand, there is the possibility of taking out a so-called forward loan – i.e. a loan that takes effect from the point in time when the previous one expires regularly.
The forward loan is taken out at the current interest rates, but the bank charges a premium for this.
"Now is the time to secure a forward loan," Herbst believes: "Forward premiums have not yet reacted to interest rate developments and are currently averaging 0.01 percent per month.
The additional costs are therefore low.
Above all, lower than the rise in interest rates that we can expect in the next few months.«
And time pressure again: It shouldn't be long before the forward premiums also rise.
