Building rates remain at low level

Experts do not expect the interest rates for real estate loans to decrease further. It is likely though, that interest rates will remain at their level in the next years. Source: Interhyp AG/ECB

As the mortgage financer Interhyp reports, the interest rate on construction loans with a ten-year commitment is below one percent at the beginning of 2020. This means that building rates are about 0.5 percent lower than a year earlier. However, experts do not expect interest rates to fall any further. Progress in the negotiations on Brexit and the trade dispute between China and the US increased the conditions for real estate loans slightly at the end of 2019. Still, expectations for 2020 are definitely positive for end consumers, as the current interest rate situation shows. The past few years have been marked by a downward trend in building interest rates. If ten years ago loans for real estate still had an interest rate at more than four percent, two years ago the interest rate was merely at two percent. Last year, interest on a real estate loan over ten years was at only 1.4 percent. This development seems to come to an end. Nevertheless, this does not mean by implication that interest rates will rise again.

Interest rates will not fall further, but remain low

“The economic slowdown, low inflation and political and economic uncertainties together with the loose monetary policy impede the upside potential,” explains Mirjam Mohr, CEO of Interhyp AG. As a result, major changes in building rates are not expected. This perception is also shared by other industry experts. “We do not see interest rates rising – the movement is rather sideways, so we can assume that the low interest rate phase will continue this year. The impact of the political and economic factors in Germany, Europe and worldwide remains to be seen”, proclaims Thomas Hein, Head of Real Estate Finance Sales at ING, with regard to the current market situation.

Real estate prices rise due to cheap real estate loans

Due to the low building rates for years, more and more people are considering to buy a property. The increasing demand in turn ensures immense increases in the value of home ownership. Especially in large cities, the available residential units and prospective buyers do not balance each other. Added to this is the fact that building materials and services in the construction industry increase annually and thus increase the prices for real estate for homebuyers. Financing experts therefore advise apartment buyers not to take the low building rates as the sole reason to acquire home ownership. However, anyone who has been planning real estate financing for a long time can certainly benefit from the current interest rate environment. In addition, property owners with loans that are already running can also check to what extent they can tap their special repayment potential. “Especially at the beginning of the year, special repayments, for example from bonus payments or thirteenth salaries, develop their greatest potential in debt reduction,” explains Interhyp.

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