Real estate loans: banks impose higher requirements

Because of high inflation, the Ukraine war and the energy crisis, banks are not only adjusting construction interest rates to the troubled times. The conditions for granting loans have also become stricter.

The banks anticipate higher living costs when financing real estate and expect a higher buffer in the budget calculation. They are also examining the property to be financed more critically than in the past. More equity is not necessarily required at present. Customers with a good regular income and manageable expenses are more welcome than customers who bring in more equity but can only just afford the monthly instalment.

The level of construction interest rates has calmed down again somewhat after initially rising sharply. The best interest rates for construction financing fell in August to below 2.4 percent for 10-year fixed interest rates. This is also an effect of the ECB's decision, which, in view of record inflation, unexpectedly raised the key interest rate to 0.50 percent for the first time in eleven years. If there is another increase in autumn, it will take even more decisive action against the high inflation in the Eurozone. Presumably, there could then be another interest rate step upwards.

Most real estate buyers currently have to use a sharp pencil. One consequence of this is the trend towards shorter fixed interest rates: For the first time since the beginning of 2016, the average fixed-interest period for real estate loans is falling below 13 years again. With a shorter fixed-interest period, the monthly instalment is reduced. Borrowers are increasingly using this adjustment screw at the moment. However, in the case of large loans, it is not advisable to hope for lower interest rates - for example in five years - with a short fixed-rate period. This is because a long-term fixed interest rate stands for a high degree of security. Alternatively, the initial repayment can be reduced. With unscheduled repayments and changes in the repayment rate during the term of the contract, borrowers remain flexible.

The average loan amounts are declining. Buyers and builders are trying to offset the current high costs. In December 2021, the average loan amount was still 319,000 euros, in July 2022 it was only 288,000 euros - around 30,000 euros less.

(Photo: © ccfb Credit Commerce, Pixabay)