Mortgage interest: is now a good time to buy a property?
How quickly the wind has turned on the real estate market can be seen from the fact that buyers are now happy about an interest rate that seemed a long way off in the low-interest era a year and a half ago. Most recently, the average interest rate for a ten-year mortgage loan was just under 3.8 percent. That is about 0.2 percentage points less than just over two months ago.
So things are calming down on the interest rate market – above all because the European Central Bank (ECB) is not tightening its monetary policy reins as much in the fight against inflation. At the beginning of May, the monetary authorities had increased the key interest rate for the seventh time in a row, as expected by 0.25 instead of 0.5 percentage points to 3.75 percent.
Michael Neumann, Managing Director of the credit broker Dr. Klein sees the ECB’s reduced pace as a precautionary measure: “In the mixed situation between high national debt in individual euro countries, the threat of recession and the fragile stability of some banks, the ECB’s room for maneuver is currently limited.”
In order not to cause major upheavals, the ECB must now act more cautiously. According to Neumann, homebuyers can now benefit from this: “Interest rates for mortgage lending are not showing any major reactions to the ECB’s decision and are currently trending relatively calmly sideways.”
Real estate prices have fallen
This means that anyone who has already planned to buy a property could now get a relatively good time. There are three main reasons why those who are willing to buy should strike now – provided the financing is solid.
First: While there are signs of an end to interest rate hikes in the USA, ECB President Christine Lagarde has already announced further steps. Although inflation in the euro zone is tending to weaken, it is still at a high level.
The ECB is therefore under pressure to raise interest rates further. Experts anticipate that interest rates on mortgage loans will continue to rise as a result. The Dr. Klein expert Neumann does not rule out a development "well above the 4 percent limit".
Secondly: House and apartment prices have fallen in recent months. According to figures from the Association of German Pfandbrief Banks, purchase prices have fallen in the last two quarters, most recently by 3.3 percent compared to the same period last year.
Home inspection tips
Anyone viewing a property should definitely do so in broad daylight. Then not only defects can be detected better, but also the overall lighting conditions can be assessed. If you want to know whether traffic noise or trades in the vicinity are annoying, you should visit on weekdays - before or after lunchtime.
A thorough property inspection takes time – and sellers and prospective buyers should take that too. Let each room work its magic on you, pay attention to details such as radiators, windows, doors and fittings. Let us show you everything in peace and then take a second tour. Then you will surely have open questions and you will get a more lasting impression.
It is also advisable to take a companion with you on a first visit. The four-eyes-principle makes every viewing appointment twice as productive, because everyone pays attention to different things. The risk of overlooking something essential is significantly lower.
If there are two people viewing a property, one person should definitely take photos of all the rooms and the outside. They help to reflect on what you have seen later and to clarify any details.
Make sure that they check your ideas and wishes on the property. A list of the most important criteria that the house should meet and a list of the most important questions that need to be clarified with the seller will help. Such lists simplify the viewing appointment considerably.
After the visit, ask for a building plan or a floor plan drawing together with a calculation of the living space, or make a photocopy of it. A digital photo of it will also do if necessary. Then you can calmly consider whether the room layout meets your requirements and whether the desired furniture would also find its place.
In the case of used properties in particular, you should examine the walls, windows, doors, roof structure and basement as closely as possible. If rot or moisture has made its way somewhere, renovation work can quickly become expensive. Watch out for possible mold growth in room corners or behind furniture, also try out windows, shutters and doors. Also take a close look at the building services: How old is the boiler? What condition are the power and water lines in?
Anyone who sells a property must submit an energy performance certificate. A lot of real estate listings say it's a work in progress. However, buyers should not do without it voluntarily, but rather insist on it. Only then does he get a comparative value for the energy hunger of a property, especially as far as the costly heating requirements are concerned. But beware: There are two variants, the requirement and the consumption card. The latter only provides information on how much energy the previous residents used on average over three years - and that depends on their individual heating behavior. The requirement certificate is only based on the building fabric and average weather and is more objective.
If the property is seriously considered after the first inspection, it is worth arranging another appointment with a building surveyor. This surveyor should be able to identify significant defects that are difficult to detect for the layperson and to estimate the necessary rehabilitation or defect removal costs. You can find suitable architects or civil engineers at Dekra (dekra.de), the Association of Private Builders (vpb.de), or the Federal Association of Freelance Experts (bvfs.de).
A property viewing should always include a walk through the neighborhood. In this way, you will be able to see how good the infrastructure is in the immediate vicinity, whether there is a source of noise that is disturbing you, and estimate the distances to shops, schools, or bus and train stops. Last but not least, the atmosphere in a residential area also plays an important role.
Price negotiations are possible again
Although the fall in prices since the beginning of 2022 has still not compensated for the rise in interest rates, the situation has at least improved somewhat compared to a few months ago. "For buyers, this could offer the chance to fulfill their dream of owning their own apartment," says Felix Kusch from the comparison portal Immowelt. Because there is less competition on the real estate market, buyers can now enter into price negotiations again.
Third: Rents have risen significantly over the past year. According to real estate specialist JLL, rents in major cities rose by an average of 6.3 percent in the second half of 2022 compared to the same period last year. Because of the rise in interest rates, even more people are pouring into the rental market and exacerbating the tense situation.
Little is likely to change about this for the time being, also because the new building is still stagnating. The temporary flight to the rental market is therefore becoming increasingly difficult for those willing to buy, due to higher rents and the scarce supply.
Also read: These graphics show the blatant loss in value of dingy real estate