Are you planning to take out a property loan? Then you should keep an eye on the building interest rates, as they make up a not insignificant part of your property financing. Housing market expert and estate agent from Jena, Thomas Wienroth, provides deeper insights into the 2023 building interest rate forecast.
INTEREST RATE TRENDS THEN AND NOW: HOW DO YOU SEE THE CURRENT OPPORTUNITIES FOR PROPERTY BUYERS?
Interest rates for mortgage loans have fallen in recent decades. Loan conditions for property have been fluctuating since the beginning of 2023, and interest rates are also unpredictable. No one can currently make a 100% forecast for mortgage interest rates. However, I recommend that you take advantage of the current favourable interest rate situation if you want to buy or build a property. Always seek professional advice and support.
FOR THOSE SERIOUSLY INTERESTED: HOW DO YOU GET TOP INTEREST RATES AT THE MOMENT?
Property financing is different from your usual account or overnight or fixed-term deposit interest rates. When financing your planned property, the current market interest rate applies, as well as numerous other parameters. I would be happy to explain some of them to you and when you have a good chance of getting top interest rates.
Job
A bank is naturally more likely to give you a loan if you have a fixed income. This minimises the repayment risk. This is particularly favourable for civil servants. If you are self-employed and/or a pensioner, it can be more difficult to obtain interest rates.
Place of residence
Your place of residence is important for banks to check supply and demand in your region. If the property you have in mind is located in a popular residential area, the chances of finding a buyer quickly are higher. This also has a favourable effect on the interest rate situation. Bear in mind that there are far fewer risks for the bank if the property is located in an attractive region (e.g. infrastructure, transport links, etc.).
Credit rating
Your credit rating must be in top shape. Only if your SCHUFA report shows a good income situation will the banks know that this buyer can repay the loan. The higher your credit rating, the better your chances of obtaining top interest rates.
Loan amount and equity
Banks offer you top interest rates if you have specific minimum and maximum amounts. If the loan amount is low, the interest rate automatically increases. As a general rule, the higher your equity, the better your chances of getting top interest rates. If you can raise the money for your home loan yourself, or large parts of it, then the risk for the bank is lower. In this respect, you can remember: high equity = low interest rate.
Fixed borrowing rate
If you have a long loan term, you will have to pay extra interest because your bank cannot look into the interest rate glass ball. I advise you to take advantage of the current low interest rates - they may compensate for any surcharges in the medium term.
Amount of the repayment
There is less risk for the bank if you pay off a large part of your loan at the beginning if possible. You will be rewarded with better interest rates. If you opt for a full repayment loan, in most cases you will receive an interest rate premium. This allows you to secure attractive interest rates. It is worth checking different loans in advance. It is best to get a professional to help you with this.
Separate agreements
Note the following approaches for improved construction financing:
- 1. long period without commitment interest
- 2. unscheduled repayments free of charge
- 3. adjustment of the repayment amount
A comparison is also worthwhile here. Take a close look at your offers. It is important that your loan is tailored precisely to your needs and possibilities.
Bank margin
Banks use mark-ups on market interest rates to cover their costs and make a profit. Obtain as many offers as possible to get the best deal for your mortgage or property purchase.
You will realise that not every bank will assess your personal starting position with the same standards. Proceed with caution and don't be hasty. Take your time to consider your mortgage, including the associated interest rates. Use the factors mentioned above to assess your own situation.
DO YOU HAVE A FORECAST FOR BUILDING RATES IN 2023?
That's a good question. And of course I don't have a crystal ball with the right solution in my office. However, I am very familiar with the property market in Germany and the opinions of numerous experts in the sector. There is indeed disagreement about building interest rates in 2023. According to the Handelsblatt, the mortgage broker Interhyp is forecasting between 3% and 4%. Dr Klein, the second in the property market, considers 5% and more to be possible. Now, in February 2023, building interest rates for a 10-year loan are around 3.6%.
An example calculation illustrates this interest rate: if you have agreed a monthly instalment of €1,000 with your bank, you have the option of a loan of around €214,000.
WHAT ACTUALLY HAPPENS TO MY PROPERTY WHEN INTEREST RATES RISE?
Rising interest rates make property more expensive overall. If property interest rates are too high and increased loan instalments are no longer affordable, demand may fall. This will result in fewer property sales, which will halt the rise in prices. You should therefore keep an eye on the current trends in building interest rates.
WHAT DO YOU HAVE TO BEAR IN MIND WITH FOLLOW-UP FINANCING AND THE ASSOCIATED INTEREST RATES?
There is a risk here for property buyers, as banks usually only offer you a fixed interest rate for a limited term. However, if the repayment instalments are too low, you may not be able to repay your entire loan amount during this period. In this case, follow-up financing is required, in which a new interest rate may apply. This interest rate is based on the current interest rate level at that time. And this cannot be estimated at present.
CAN WIENROTH REAL ESTATE ALSO ADVISE ME ON CURRENT INTEREST RATE TRENDS?
Yes, we keep a close eye on the property market and the associated forecasts for building interest rates. We are therefore able to give you a quick and comprehensive overview of the current situation on the market. We are also happy to take a look at your personal starting position if you are thinking about building finance and provide you with professional advice on your plans.