Status: 07/29/2022 10:20 a.m.
Mortgage rates have more than tripled since January. According to experts, however, the trend has stopped for the time being. They expect interest rates to rise only slightly at most by the end of the year.
After the rapid rise in interest rates, experts see respite for builders and home buyers. After a recent downward trend, they expect construction interest rates to rise relatively little or move sideways by the end of the year. Even before the European Central Bank (ECB) interest rate hike, interest rates on ten-year construction loans had fallen significantly, according to Munich-based credit broker Interhyp. They were most recently around 3% after a healthy 3.4% at the top.
“At the moment, the trend in construction interest is down,” said Max Herbst, founder of financial advisory FMH. There is a short term decline, the uptrend is broken. More recently, Herbst was still eyeing a possible four percent interest after the summer break. After construction interest rates more than tripled from 0.8% to over 3% since January, Interyhp now expects less momentum.
“Economic concerns are gaining importance”
“Banks have already largely priced in expectations of planned rate hikes, and concerns about the economy are becoming increasingly important,” said Mirjam Mohr, head of retail banking at Interhyp. This slows the rise in interest rates. The signs are now ready for a tighter monetary policy. Interhyp expects construction interest rates to rise moderately to 3.5-4% for ten-year loans by the end of the year.
Ditmar Rompf, CEO of construction financier Hüttig & Rompf, is more reserved. Much of the interest rate hikes announced by the ECB have already been anticipated in the rise in interest rates. He thinks a three percent interest is realistic even at the end of the year.
Rise in interest rates burdens borrowers
The rise in construction interest rates since the beginning of the year is explained by the high level of inflation, which is pushing central banks to raise interest rates. The ECB also announced further rate hikes. In anticipation of a tightening of monetary policy, yields on ten-year government bonds, which serve as the basis for construction interests, soared. Recently, however, yields have fallen sharply.
Rising interest rates since January mean huge burdens for borrowers. With construction financing of more than 400,000 euros at an effective interest rate of 3%, there are almost 79,000 euros in additional costs over ten years, the comparison portal Check24 recently calculated.
Debt crisis concerns make bonds more attractive
Pekka Sagner, real estate expert at the German Economic Institute (IW), expects interest rates to plateau. Recently, there have been clear exaggerations, he said. If further interest rate hikes by the ECB trigger concerns about a payments crisis in highly indebted countries like Italy, construction interest rates could fall further, Sagner said. “The idea that higher policy interest rates automatically mean higher interest rates for construction is misleading.”
Concerns about a new debt crisis in southern Europe could make Bunds more attractive to investors. This would drive up their prices and, in turn, drive down federal bond yields – and with them interest rates on construction projects.
The ECB has already announced that it will intervene by buying bonds if necessary, if the interest rates on the securities of the euro countries rise disproportionately. FMH expert Herbst also believes that the situation in Italy with the recent government crisis may lead investors to increasingly seek safety in federal bonds.