High building interest rates are putting a strain on the real estate market: experts expect further increases and warn of rising credit costs.

High building interest rates are putting a strain on the real estate market: experts expect further increases and warn of rising credit costs.

According to an article by WiWo.de, building interest rates are on a rapid rise and there is no relief in sight. Experts expect building interest rates to remain stable or even continue to rise in the coming months. This impacts property buyers as they face higher borrowing costs. Real estate prices could also remain under pressure. A third of banks already charge interest rates of over five percent for loans with a high loan-to-value ratio of 90 percent. The reason for the rise in interest rates is, among other things, the increased inflation due to the Ukraine conflict and the jump in energy prices. Although the European Central Bank (ECB) has paused for the time being in raising key interest rates, any discussion about interest rate cuts is seen as premature. The Fed in the USA also signaled that key interest rates will remain stable. The construction financing broker Interhyp expects that interest rates for ten-year loans will remain at the current level until the end of the year. Experts assume that the ECB will not lower key interest rates until the second half of 2024 at the earliest. Due to the high loan interest rates, a recovery in the real estate market is being delayed. In the second quarter of 2021, prices for residential real estate fell surprisingly sharply by almost ten percent. However, property prices have not fallen enough to offset the increase in loan interest rates. The situation on the real estate market therefore remains tense.

The effects of the high rise in building interest rates are far-reaching. For property buyers, this means higher borrowing costs as interest rates on building financing rise. This makes buying a property more expensive and no longer affordable for many people. For builders, the dream of owning their own home is also made more difficult by the high interest rates.

Due to the consistently high building interest rates, property prices could also remain under pressure for longer. If financing becomes more expensive, demand for real estate falls and prices could fall further. This particularly affects property owners who want to sell their property.

Loan conditions are currently fluctuating, but experts expect a slight increase in building interest rates by the end of the year. There is no relief in sight as the economic situation is not developing in such a way that building interest rates could fall by 0.5 percentage points again.

There is a risk that the Middle East conflict will escalate, which could cause oil prices and inflation to rise further. This would make key interest rate cuts by the ECB even more distant. These uncertainties can also have an impact on the real estate market.

The situation on the real estate market remains tense. Buyers and sellers rarely come together because property prices have not been reduced sufficiently despite the decline. High demand and limited supply continue to lead to price increases.

Source: According to a report from wiwo.de