After the rapid increase in interest rates, experts see a breathing space for builders and real estate 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's (ECB) interest rate hike, interest rates for ten-year construction loans had fallen noticeably, according to the Munich-based credit broker Interhyp. They were most recently at around three percent after a good 3.4 percent at the top.
"At the moment the trend in construction interest is falling," said Max Herbst, founder of FMH financial advice. There is a short-term dip, the uptrend is broken. Most recently, Herbst still considered building interest of four percent possible after the summer break. After building interest rates have more than tripled from 0.8 percent to over three percent since January, Interyhp now expects less momentum.
"Concerns about the economy are gaining in importance"
"The banks have already largely factored in expectations of the planned key interest rate hikes and concerns about the economy are becoming increasingly important," explains Mirjam Mohr, Interhyp's board member for private customer business. That slows down the rise in interest rates. The signs are now set for a tighter monetary policy. Interhyp expects a moderate increase in construction interest rates to 3.5 to four percent for ten-year loans by the end of the year.
Ditmar Rompf, CEO of the construction financier Hüttig & Rompf, is more reserved. Much of the interest rate hikes announced by the ECB have already been anticipated in the building interest rates. He thinks three percent interest is realistic even at the end of the year.
Rise in interest rates heavy burden for borrowers
The reason for the rise in construction interest rates since the beginning of the year was the high level of inflation, which is putting central banks under pressure to raise interest rates. The ECB has also announced further rate hikes. In anticipation of a tighter monetary policy, the yields on ten-year government bonds, which are used as a basis for construction interest, shot up. However, yields have fallen sharply recently.
The rise in interest rates since January means immense burdens for borrowers. With construction financing of more than 400,000 euros at an effective interest rate of three percent, there are almost 79,000 euros in additional costs over ten years, the comparison portal Check24 recently calculated.
Concerns about the debt crisis 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 payment crisis in highly indebted countries like Italy, building interest rates could fall further, Sagner said. "The idea that rising key interest rates automatically mean higher building interest rates is deceptive."
Concerns about a new debt crisis in Southern Europe could make Bunds more attractive for investors. That would drive up their prices and, in return, depress the yields on federal bonds – and thus the interest rates on construction projects.
The ECB has already announced that it will intervene by buying bonds if necessary, should interest rates on securities from euro countries rise disproportionately. FMH expert Herbst also believes that the situation in Italy with the recent government crisis can lead to investors increasingly looking for security in federal bonds.