End of cheap loans
Real estate loans are getting expensive – and that could be dangerous
Real estate prices have been rising for years, but the money to buy them came at historically low interest rates. But those times seem over. Those who borrow money from the bank have to dig deeper into their pockets.
Real estate prices know no limit, it seems. Even away from the metropolitan areas, the prices for a home are climbing. Only in a very few regions of Germany are prices stagnating. “The prices for residential property have been rising continuously since 2010. The upward trend has continued since the corona pandemic – despite the decline in economic output,” says “Wüstenrot”. “The real estate market is thus unaffected by the effects of the pandemic.”
This trend is fueled above all by particularly cheap money. Home buyers were able to secure the loans for real estate at bargain rates. At least so far. Because interest rates for real estate loans with a ten-year fixed interest rate rose to an average of 1.05 percent in November, according to the finance broker Interhyp, reports the “Wirtschaftswoche”. At first glance, that may still seem very cheap – and compared to interest ten years ago, when around four percent was due, it is. But: Since the beginning of the year, interest rates on real estate loans have risen sharply.
The “Wiwo” reports that at the beginning of the year the interest rate for a ten-year term was an average of 0.75 percent. This means that interest rates have risen by around 40 percent. The experts from “Finanztest” also report in the November issue that interest rates have been very stable over the past two years. “Nevertheless, it has become significantly more expensive to finance a property.”
Rising interest rates, rising prices
The problem: the trend could intensify. Because if you want to buy a property quickly out of concern about rising interest rates, you simply accept high prices. According to the “Wiwo”, only more equity will help to reduce the interest burden. “This trend is likely to continue,” says Max Herbst, owner of FMH Finanzberatung, to “ntv”. “Because inflation is also pulling interest rates up.”
The experts at Interhyp, on the other hand, do not yet want to speak of a trend reversal. However, if you already have a property in mind and are currently hoping for better credit conditions, you should strike directly.
Follow-up financing as a risk
However, Häusle buyers could face enormous financial burdens in the future. Because if the end of cheap loans has been heralded, the follow-up financing could turn out to be an enormous hurdle. Households in particular that bought the property without a financial buffer and financed it monthly could quickly get into difficulties with higher repayment installments. The “Wiwo” also warns of a high residual debt if the borrower cannot make higher advance payments: “In the worst case, the financing threatens to overturn.” Full financing is particularly dangerous in this case, as the mortgage lending value of the property is quickly exceeded. This value indicates how much the bank would still get for the property in a foreclosure auction.
If you want to purchase a property, you should definitely calculate realistically – and also calculate rising interest rates so that the dream of owning your own home does not turn into a nightmare. Consumer advocates recommend bringing at least 20 percent of the purchase price as equity. In addition, there are the ancillary purchase costs, which should also be paid without credit.
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