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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.”

Real estate: interest rate shock on the housing market: is mortgage lending dead?


Interest rate shock on the housing market: is mortgage lending dead?

Many people can no longer afford to own their own home because of the rise in interest rates, and the real estate loan business has collapsed. Is this the new reality? Five theses on the future of mortgage lending.

by Philip Frohn

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

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.

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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

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