Tips from the interest rate expert: This is how your property pays off

Created: 11/30/2022, 9:58 am

By: Corinna Maier

By the end of the year, Interhyp expects four to 4.5 percent interest with a ten-year fixed interest rate.

For financing, a few percentage points after the decimal point quickly add up to a burden of several hundred euros.

© Patrick Pleul

Inflation and uncertainty in the wake of the Ukraine war have also left their mark on the real estate market.

What's next?

An interview with banker Mirjam Mohr from Interhyp AG.

Munich – Something unusual is currently happening on the Bavarian real estate market: sales are falling, projects are being postponed, purchase prices are falling.

Inflation and uncertainty in the wake of the Ukraine war have left their mark.

What does this mean for prospective buyers?

builders?

investors?

homeowner?

What's next for the real estate market in the Munich metropolitan region with its extensive commuter belt?

We spoke to a number of experts about this.

Today: The banker.

Mirjam Mohr has been a member of the Management Board of Interhyp AG since 2010.

She is responsible for the private customer business of the credit broker Interhyp, which is represented at over 100 locations throughout Germany and has its headquarters in Munich.

Is waiting a good strategy?

An interview with interest rate expert Mirjam Mohr

Interest rates rise.

How much is this already noticeable in construction financing?

It's true that mortgage interest rates have risen so quickly and so sharply this year that hardly anyone expected.

The culprit is, of course, high inflation as a result of the Ukraine war and the more restrictive policy of the European Central Bank.

To put it in numbers, at the beginning of the year we were around 1% on 10-year financing, today it's 4%.

And how much have the financing projects now declined?

There has already been a noticeable decline in the mortgage lending market compared to the first few months of the year.

The rise in interest rates increases the monthly burden enormously.

Do you have an example calculation?

Let's assume a financing volume of 400,000 euros, 50,000 euros of equity and an initial repayment of two percent.

With an interest rate of 3.5 percent, the monthly rate is 1705 euros.

At 4 percent interest, just half a percentage point more, it's already 1860 euros.

Some construction projects are already being abandoned or cancelled.

Yes, we notice that too.

Property developers and potential buyers of real estate often prefer to wait and see.

There are simply a lot more uncertainties at the moment than there were at the beginning of the year.

People think more carefully than before and, if necessary, postpone their project a bit into the future.

There is simply a great deal of uncertainty - for example due to economic concerns and inflation, which is making people wait and see.

It's no different with builders.

They too have become more cautious.

Is waiting a good strategy?

Maybe interest rates will go up a lot more.

Hard to say.

On the one hand, the ECB has made it clear that it intends to continue its strict monetary policy course.

On the other hand, the economic situation is deteriorating, which speaks against further sharp rises in interest rates.

We currently see more of a sideways movement.

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What is your forecast for the end of the year?

We assume that we will tend to have interest rates that will remain the same, but will fluctuate strongly.

At the end of the year we could be at 4 or 4.5 percent, slightly above the current level.

Interest rate expert: "It is important to obtain thorough information and advice at an early stage"

What should builders do now in view of this forecast?

It is important that you compare the conditions of banks exactly.

It's worth it now, because in such a volatile environment, interest rates differ more than usual.

What is your advice to those who need to take out construction financing or extend a loan now?

Finish as long as possible?

Let me say in advance that cheap financing is still possible.

It is important to obtain thorough information and advice at an early stage.

We recommend starting the financing process even without a specific property.

The more precisely I know what I can afford, the better I can look for suitable properties on the real estate market.

The market is changing.

In what way?

The real estate offers are increasing.

The market becomes more balanced.

And it is again often possible to talk about the purchase price.

If you then have your documents together, you can react more quickly once you have found your dream property.

But back to the question: we advise financing for the long term.

How long term?

Ten years, 15 years, maybe longer.

Anyone who needs follow-up financing can also take action at an early stage.

Forward loans can be concluded up to five years in advance.

For new financing, we recommend bringing at least 20 percent equity and paying the additional purchase costs from equity.

And we advise paying off as much as possible right from the start.

How far can real estate prices go down?

We've already seen price corrections in the last two quarters due to falling demand.

Our forecast is that we could see discounts of five to 15 percent in a metropolitan area like Munich.

In very rural areas it can also go towards 20 percent.

Some of the financing was perhaps tightly calculated and could now burst.

Do you expect a growing number of fire sales?

The criteria of the banks in Germany are very security-conscious and conservative.

In concrete terms, this means that on average we have a fixed interest rate, i.e. interest rate security, of 13 years.

Then we are talking about a percentage loan on the property of around 80 percent - currently even less - and an initial repayment of two to three percent.

After the end of the fixed interest period, a lot has already been paid off.

Therefore, we do not assume that there will be a significant increase in foreclosures.

Are banks becoming stricter when it comes to lending?

In principle, the lenders continuously adapt their award criteria to market developments.

So criteria like: What do I set as household expenses or as a flat rate car allowance.

There have already been significant increases of around ten to 15 percent on average in the past few months.

Interview: Corinna Maier

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