Ms. Mohr, how does the stress in the financial sector affect building interest rates?
Within a short space of time, yields on ten-year Bunds fell by 40 basis points – at their peak by as much as 65 basis points. With the yield on the federal bond, the building interest has also fallen noticeably.
So where are the interest rates now?
For loans with a ten-year fixed interest rate, you pay 3.77 percent. In the course of the turnaround in interest rates, it had been more than 4 percent at times. It is interesting that you pay more for both longer and shorter fixed interest rates: for 20-year building loans, the interest is 4.02 percent, for five-year building loans it is 4.0 percent.
What’s behind it?
The financial markets seem to think that rising interest rates are possible, especially in the short term, but they don’t see much change in the long term. But the daily fluctuations are high.
What else do I have to add to the construction interest mentioned in practice if I want a loan from my regional bank as a normal citizen?
The interest rates in our comparisons are practical values. There are differences depending on creditworthiness or equity. The latter has now become even more important. Ideally, someone should be able to finance the additional purchase costs entirely with their own capital – and 20 percent of the actual costs, so that they have to borrow a maximum of 80 percent of the house.
Do you feel that the banks are becoming more cautious when it comes to lending?
In any case. Among our 500 banks, whose offers are brokered by Interhyp, some restrictions on the loan-to-value ratio have been introduced. For example, they only finance up to 95 percent. However, this is not the case across the board. Full financing continues to be found, especially with regional institutes that know their market well. However, many banks have also become more cautious in calculating what installments a borrower can afford. Due to inflation, higher monthly amounts are now accepted, for example for a car, heating or groceries.
Are borrowers reacting to the higher interest rates with lower repayments?
Yes, that is to be observed. Repayments of three or four percent are becoming rare given the higher interest rates. On average, repayments have fallen from 2.7 to 2.4 percent since spring 2022.
Which banks tend to have the cheapest mortgage lending?
That cannot be said in general terms. Sometimes it’s the direct banks, sometimes regional banks. But some insurers also have interesting offers. Definitely worth comparing. This also strengthens the bargaining power of the consumer. It has increased significantly recently anyway.
In what way?
The seller’s market has become a buyer’s market. Especially here in Munich, not so long ago, as a real estate buyer, you felt like a supplicant. That has changed. Buyers can more easily negotiate with the seller. Sometimes you can negotiate that there is an underground parking space, that something is being done to improve energy efficiency in the apartment, or that the seller pays the brokerage fee. And of course it’s always about the price.
Real estate prices have recently fallen. As a buyer, is it worth waiting a little longer for prices to fall further?
Our figures show that prices have stabilized since the beginning of the year. We have our own indicator that we use to compare real estate prices across all segments, eliminating any possible special effects. According to this indicator, prices fell by 8 percent last year. So far this year, however, we have not observed any further development.
Will construction interest rates rise further with further ECB interest rate hikes?
We assume that a lot has already been priced into the building interest rates. Of course, nobody knows exactly how the turbulence in the financial system will continue. We are expecting a corridor for building interest rates of between 3 and 4 percent for this year. Forecasts beyond that are very difficult.
But it cannot be completely ruled out that inflation will prove to be very persistent and that the ECB will have to raise interest rates significantly further, right?
That’s a scenario that’s possible. However, the ECB now has to consider not only price stability but also financial stability. I would think that building interest rates could temporarily rise above 4 percent again. But I don’t see 5 or 10 percent in the foreseeable future.
Why are so many now afraid to build a house – weren’t interest rates higher in the past?
Yes, when we founded Interhyp 20 years ago, the interest rate was 6.5 percent. But since then, real estate prices have of course risen sharply.
The decisive factor is the proportion of disposable income that someone spends on housing. We made a comparison: In 2005, the average monthly rate that a household paid for a real estate loan arranged through us was 880 euros with a net household income of 3462 euros. Last year it was 1406 euros rate with an income of 5350 euros. The proportion of disposable income that a household spent on the loan rose only slightly, from around 25 to 26 percent. This shows that the impression that a home of your own has now become unaffordable with the rise in interest rates is primarily a result of getting used to the past phase of low interest rates.