After strong growth: Experts see a easing in interest rates in construction

Status: 07/29/2022 10:20

Mortgage rates have more than tripled since January. However, according to experts, the trend has stopped for now. They expect interest rates to increase slightly at most by the end of the year.

After the sharp rise in interest rates, experts see a respite for construction companies and real estate buyers. Following the recent downward trend, construction interest rates are expected to rise relatively little or to rebound by the end of the year. According to the Munich-based credit broker Interhyp, even before the interest rate hike by the European Central Bank (ECB), the interest rates on ten-year construction loans had dropped significantly. They were around three percent recently, after a good 3.4 percent at the top.

“Right now, the trend of interest in construction is declining,” said Max Herbst, founder of FMH’s financial advisory. There is a short-term decline, the uptrend is broken. Recently, Herbst was still considering the possibility of building a 4% interest after the summer break. After interest rates have more than tripled from 0.8% since January. to over three percent, Interyhp now expects a slower pace.

“Economic worries are gaining in importance”

“Banks have already largely taken into account expectations for the planned rate hikes, and concerns about the economy are becoming increasingly important,” explains Mirjam Mohr, retail banking director at Interhyp. This slows the rise in interest rates. There are now signs of a monetary tightening. Interhyp expects a moderate increase in construction interest rates to 3.5 to 4 percent for ten-year loans by the end of the year.

Ditmar Rompf, CEO of the construction finance company Hüttig & Rompf, is more reserved. Many of the interest rate hikes announced by the ECB were already envisaged in the construction of interest rates. He believes that a 3% percentage is realistic even at the end of the year.

The increase in interest rates is a big burden for borrowers

The reason for the rise in interest rates in construction since the beginning of the year was the high level of inflation, which put pressure on central banks to raise interest rates. The ECB also announced further rate hikes. In anticipation of a monetary tightening, the yield on ten-year government bonds, which are used as the basis for interest rates in construction, has increased. Recently, however, the harvest has fallen sharply.

The increase in interest rates since January has put a heavy burden on borrowers. With construction financing of more than 400,000 euros with an effective interest rate of three percent, the additional costs over ten years will be almost 79,000 euros, as recently calculated by the comparison portal Check24.

Concerns about the debt crisis make bonds more attractive

Pekka Sagner, a real estate expert at the German Institute of Economics (IW), expects interest rates to stabilize. He said there has been clear exaggeration lately. If further interest rate hikes by the ECB raise concerns about a payment crisis in highly indebted countries such as 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 may increase the Bund’s attractiveness to investors. This would raise their prices and in return lower the yields on federal bonds and thus the interest rates for construction projects.

The ECB has already announced that, if necessary, it will intervene by buying bonds in the event of a disproportionate increase in interest rates on securities from euro area countries. The FMH Herbst expert also believes that the situation in Italy with the recent government crisis may cause investors to increasingly look for security in federal bonds.

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