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Build ten-year loan interest over 3 percent

Kreturns for property buyers in Germany are becoming more and more expensive. According to Frankfurt-based financial advisory firm FMH, the average effective interest rate for the ten-year loan has risen above the 3 percent threshold for the first time in more than ten years. Interest rates above 3% for ten-year construction loans were last observed on April 5, 2012.

The most recent rise in building interest rates since June 7 was “particularly extreme” with a jump from 2.79 to 3.02 percent in one week. The triggers were likely high inflation and the announcement by the European Central Bank (ECB) that it would raise interest rates. Loans for home buyers are likely to get more expensive, FMH founder Max Herbst expects. In April, he thought a 4 percent interest on a ten-year loan to the end of the year was conceivable. Now it is conceivable “after the summer break”.

Interest rates have risen sharply in recent months. As of December, the interest rate for the 10-year loan was still 0.9 percent. The reason for the increase in interest in construction is the generally rising level of interest rates on the capital markets. Due to high inflation, central banks are under pressure to tighten their accommodative monetary policy. The US Federal Reserve will decide on further steps this Wednesday. The rate is expected to increase by at least 0.5 percentage points over a range of 1.25 to 1.5 per cent. Some economists even expect 0.75 percentage points.

After much hesitation, the ECB has also decided to exit its ultra-accommodative monetary policy: bond purchases worth billions of dollars will end on 1 July. At the next regular meeting of the ECB Council on 21 July, the central bank intends to raise key interest rates for the first time in eleven years, initially by 0.25 percentage points each time.

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