ROUNDUP: building interest over four percent – fluctuations with bank turbulence

FRANKFURT (dpa-AFX) – After an increase in construction interest rates above the four percent mark, experts expect fluctuations in the wake of the banking problems in the USA. For real estate buyers, they see a short-term relaxation in financing. In the medium term, however, construction interest rates are likely to increase significantly, believe many experts.

At the beginning of the week, building interest for ten-year financing was above the four percent mark, according to data from Frankfurt-based FMH financial advice and the credit broker Interhyp. After an interim low of a good 3.5 percent in January, interest rates for such loans rose again noticeably and reached their highest level since October, when they had already been just over four percent.

According to Interhyp, the interest for loans with a ten-year fixed interest rate was 4.05 percent on Monday. “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. FMH recently saw construction interest rates as high at an average of 4.02 percent.

The prospect of further interest rate hikes by the major central banks in the fight against stubborn inflation had driven interest rates on the capital markets up. 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 (ECB) this Thursday, a further increase in key interest rates is considered very likely.

With the banking crisis in the USA, however, there is now severe turbulence, which is also having an impact on federal bonds. Nervous investors are fleeing to safe investments and stocking up on their bond holdings. This means that ten-year Bunds have risen, and yields have fallen significantly again in the past few days.

“The first banks have reacted to this and lowered mortgage interest rates again,” said Ingo Foitzik, Managing Director of mortgage lending at the comparison portal Check24. He expects more sharp rate cuts this week. In the medium term, however, he expects an upward trend: “In the coming months, the interest rate will go back towards four percent or even more as a result of further interest rate hikes by the ECB.”

Max Herbst, founder of FMH-Finanzberatung, goes even further: “Five percent by the end of the year is not a pessimism, but a realistic forecast.” A significant weakening of inflation is not in sight. “As long as inflation hardly falls, the pressure on Bunds will remain high.” High wage agreements in collective bargaining rounds also caused prices to rise. Autumn sees the end of the age of extremely cheap real estate financing with low interest rates.

“The ECB is walking an extremely fine line between calming the market and fighting inflation,” wrote Michael Neumann, CEO at Dr. Small. If the ECB’s inflation target remains realistic, there should not be any sustained increases in construction interest rates. The situation is different if the inflation data speak against it in the coming months. “Then interest rates for ten-year loans of well over four percent are possible.”

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.

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. It was the weakest start to the year since the time series began in 2003, commented the analysis company Barkow Consulting./als/DP/zb

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