The consequences of the interest rate turnaround are making themselves felt in the real estate market. According to Savills, a service provider specialising in real estate consulting, activity in the investment sector has declined rapidly in recent weeks. Roland Lenz, a construction finance specialist at Dr. Klein in Stuttgart, predicts a flattening price trend, but no collapse in property prices.
While the rise in interest rates has not yet had an impact on prices, direct effects can already be seen in financing, according to Dr. Klein's expert: "Tight financing is no longer possible. The banks are tightening their criteria." Due to the rising cost of living, sufficient equity capital is a prerequisite.
Property buyers have to reckon with significantly higher charges. Lowering the repayment rate is one way to reduce the monthly instalment - but caution is advised here: The lower the repayment rate, the longer it will take to repay the loan. The initial repayment should be between two and three percent - the higher the better.
The loan-to-value ratio shows how much debt capital can be used to finance a property. This is based on the mortgage lending value of the property, which is not identical to the purchase price because the banks still calculate safety discounts. The lower the mortgage lending value, the more equity there is in the financing of the property - and the more favourable the interest rate offered by the banks. It is worth asking for support in the family environment - for example in the form of a private loan or an early inheritance. This way, borrowers can improve the conditions of their financing.
The so-called standard rate shows how expensive it has become to borrow money from the bank. It makes interest rate changes comparable based on a sample financing of 300,000 euros with two percent repayment, 80 percent loan-to-value ratio and ten years fixed interest. In May 2022, the standard rate rose to 1,190 euros. In the same month of the previous year, it had been 793 euros.
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