If you want to buy a property, you have to expect significantly increased interest rates again. The interest rates for ten-year financing have once again climbed above the four percent mark, as data from Frankfurt-based FMH-Finanzberatung and the credit intermediary Interhyp show. Thus, the interest rates on such loans rose noticeably after an interim low in January at a good 3.5 percent and reached the highest level since October, when they had already been just over four percent.

According to Interhyp, interest rates on loans with a ten-year fixed interest rate were 4.05 percent at the beginning of the week. "For the current year, we expect interest rates to fluctuate sharply in a corridor of between three and four percent, and for a short time even higher, as is currently the case," said Mirjam Mohr, Member of the Board of Management responsible for private customer business. FMH-Finanzberatung also sees interest rates on 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.

Much less new business

The prospect of further interest rate hikes by the major central banks in the fight against high inflation has driven up interest rates on the capital markets. At the end of February, for example, the yield on ten-year German government bonds, on which construction interest rates are based, rose to its highest level since 2011. At the interest rate decision of the European Central Bank this Thursday, observers firmly expect the next key interest rate hike.

A significant weakening of inflation is not in sight, said Herbst. "As long as inflation hardly falls, the pressure on German government bonds will remain high." High wage agreements in collective bargaining rounds also led to price increases. Only when inflation is under control, the interest rates are likely to fall again. Herbst sees the age of extremely cheap real estate financing with low interest rates as over.

The rapid increase in interest rates since the beginning of last year has made financing enormously more expensive and stopped the year-long real estate boom – prices for apartments and houses have fallen slightly on average. For comparison: In January 2022, real estate buyers were still able to conclude ten-year financing at less than one percent interest per year. The worse conditions mean that the monthly installments for interest and repayment are hundreds of euros higher than before, which makes the purchase of real estate unaffordable for many people.

The rise in interest rates is also making itself felt in the mortgage lending business, which has collapsed since last spring. According to data from the Deutsche Bundesbank, new business with mortgage loans including extensions amounted to 12.7 billion euros in January – almost half as much as in the same month last year. It was the weakest start to the year since the beginning of the time series in 2003, commented the analysis house Barkow Consulting.