Increase in interest rates: when the dream of owning a home is shattered

Status: 13/06/2022 11:59

The rapid increase in construction costs and building interest have ruined the dream of owning a property for most of the average incomes. If you still want to buy, you should pay attention to a few things and act quickly.

Young teacher Stefan P. wanted to fulfill his dream of owning a home. In fact, he was already all wrapped up in dry clothes. At the beginning of 2021 he planned the construction of the house and obtained offers. The property had already been acquired by equity and the new turnkey building should have cost € 525,000. At the then annual interest rate of 0.6 percent for a 15-year interest guarantee, the monthly loan payment, including the initial two percent repayment, was 1138 euros.

After a year abroad, the project should now be implemented. A few months ago, the teacher again asked about construction costs and interest. The result is bitter: it is said that the same house costs 590,000 euros, the interest on the loan is 2.9 percent per year. This means a credit rate of € 2409. Too much for Stefan P. – the dream of owning a home had broken out.

Many home builders face big problems

The current situation is causing serious problems for many potential homeowners. Mortgage interest rates have skyrocketed since Christmas. Most experts did not expect this either. At the end of May, the borrowing rate for ten-year fixed interest rates was about 2.7%, according to NRW’s consumer advisory center. Compared to the 2000s, it is still little, but a lot compared to historically low interest rates. “Due to high inflation, among other things, there is evidence that interest rates will continue to rise,” says Thomas Hentschel, a finance officer at NRW’s consumer advisory center.

Experts expect an initially moderate increase in mid-July. Further steps could follow later in the year. Offenburg-based managing director of azemos Vermögensverwaltung, Rainer Laborenz, also expects interest rates to continue to rise. In view of the uncontrolled rise in inflation, investors are less and less willing to invest their money at interest rates close to zero percent. And central banks should also significantly tighten the interest rate screw to bring monetary stability back under control.

Longer fixed interest rates make sense

“Problems will arise if, in a few years, the fixed interest rate for the real estate loan concluded at 0.6 percent interest will expire and borrowers will no longer be able to afford the loan rate, which could be three times higher,” says the executive. by azemos director.

In view of the rise in interest rates, it recommends its clients to have a duration of at least 15 years to get some security on interest rates. “The interest premium for longer interest rate securities is relatively low. There is a premium of only 0.6 percentage points between a 10-year and a 20-year fixed interest rate,” says Laborenz.

Warning of presumed favorable conditions

Mortgage interest rates are rising at a time when property prices are also rising rapidly. The Consumer Advisory Center recently released information that consumers should pay attention to. “Anyone who is currently planning to finance a property should calculate carefully,” says Hentschel. “Monthly payments for interest and repayments should not exceed 30-35% of net disposable income. Because there are at least 10 to 15% of additional property maintenance costs such as electricity, heating, water, taxes or fees. ” And these prices are also known to rise.

The Consumer Advice Center warns that credit conditions in advertising are often too low. Likewise, don’t be blinded by the interest rates offered by the house bank or on Internet portals. In most cases, these offers only apply to a portion of the loan amount. With more capital borrowed, the bank’s risk increases and therefore also the interest on the loan.

Extend an existing loan now?

Rainer Laborenz recommends an early extension to homeowners who need to extend the loan in the near future. Since he has to contend with a further increase in mortgage interest rates, he recommends the so-called “term loan”. It works like a normal subsequent loan, with the particularity that the customer reaches an agreement with the bank long before the end of the old fixed-rate period. This means that the customer can already secure the connection interests for the financing today.

Ideally, this can be cheaper. Most importantly, it gives customers greater predictability and the security of being able to serve the loan over the long term.

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