Financing real estate was not a major issue during the low-interest phase. The sharp increases in real estate prices over the past few years overtook the purchase price paid after just a few months, and the historically low interest rates meant that the monthly burden was bearable. That has now changed.
Construction financing rates have almost quadrupled since the beginning of the year, but there has been no significant drop in prices. Likewise, higher living costs, which are often factored in by the banks, are making it more difficult to buy real estate.
The consequences of the sharp rise in interest rates combined with the uncertain economic outlook are clouding sentiment on the financing markets. The German Real Estate Financing Index (Difi), a sentiment indicator for commercial real estate financing surveyed quarterly by JLL and the Leibniz Centre for European Economic Research (ZEW), slumped significantly in the second quarter of 2022.
The Difi reflects the assessments of financing experts. It assesses the situation on the credit market in the past six months and the expected development in the coming six months. The indicator for the situation fell by 53.4 points to minus 55 points, while the indicator for future expectations deteriorated by 35.5 points to minus 48.3 points. These serious changes are a reaction to the current geopolitical and economic risks. The assessments reflect concerns about the overall economic development, which may have an impact on the real estate markets.
According to experts, however, the deterioration in the housing finance market should not be overestimated. Anyone who wants to finance a residential property now can use several adjusting screws to keep the monthly rate affordable. In addition to the interest rates, the repayment, the amount of equity and also the duration of the fixed interest rate affect the financing.
According to experts, the European Central Bank's July 2022 0.5 percent increase in the key interest rate is unlikely to result in a further upward trend in construction rates.
(Photo: © Piro 4D, Pixabay)
