Buying real estate at high interest rates: What is important?

Interest rates have risen surprisingly sharply. Many prospective builders or buyers are asking themselves whether they can still implement their plans to build up wealth with real estate now. One argument in favour of this is that real estate is part of a long-term investment strategy. If you look back, you will see that current interest rates are still below the long-term average.

This is the current starting situation: the standard rate, which is the average monthly burden of an exemplary building loan, has risen in recent months and reached the 1,500 euro mark in October. Within the last six months, the standard rate has risen by more than 400 euros. In October 2021, it was still at 810 euros.

In recent weeks, interest rates have zigzagged. In November they were below this year's high of around four percent for ten-year loans. As long as the inflation rate is high, the European Central Bank will have to react with further increases in the key interest rate, which will entail increases in the construction rate.

In order to lower the monthly instalment, many borrowers set the repayment lower. In February 2022, it was still at its annual high of 2.78 percent, but since then it has fallen steadily to 2.27 percent in October. Caution: If you repay at a lower rate, you pay off for longer.

In order to keep the risk of interest rate changes low, borrowers opted for the longest possible fixed interest rate at the beginning of the year. In the following months, the trend was towards shorter fixed-rate periods, because these are associated with more favourable conditions - but at the expense of security.

For a successful investment in real estate, the relationship between real estate price development and financing conditions is crucial. In the 1990s, interest rates were over nine percent, around the turn of the millennium they were still seven percent, after which interest rates fell continuously, in some cases to below one percent between 2020 and spring 2022. Meanwhile, property prices rose continuously - at first very slowly around the turn of the millennium, but rapidly from 2010 onwards. Nationwide, prices for detached and semi-detached houses as well as owner-occupied flats increased by around 65 percent between 2010 and 2020 alone.

(Photo: © Alpay20, Pixabay)