Real estate financing: What's next in the new year?

The European Central Bank has raised the key interest rate once again and holds out the prospect of further increases. What serves to fight inflation, on the other hand, entails high lending rates for real estate financing and a dampening of the economy.

The key interest rate was increased by only 0.5 percent in December 2022 and not by 0.75 percent as originally assumed. The central bankers want to make further interest rate steps dependent on the respective "data situation" - i.e. the inflation rate and the development of the economy.

After growing by more than 1.5 per cent in 2022, economic output will fall by 0.75 per cent in 2023, the Institute of the German Economy (IW) predicts. The Ifo Institute is more optimistic. It expects a milder winter recession than expected. Economic output will shrink by only 0.1 per cent in 2023. The inflation rate will fall from 7.8 per cent in 2022 to 6.4 per cent in 2023. Both figures are significantly lower than assumed in autumn because they now take into account the electricity and gas price brake.

The persistently poor general conditions have led to a noticeable drop in sentiment among German real estate financiers. The German Real Estate Finance Index (Difi), a quarterly sentiment indicator, has fallen for the fourth time in a row. The housing sector has been particularly hard hit by the economic situation. Financing institutions are applying stricter lending standards.

The data analysis of the Dr. Klein Mortgage Trend Indicator shows that first-time and follow-up mortgages were taken out in November 2022 with an average initial repayment rate of 1.98 percent. In times of higher interest rates, borrowers increasingly choose a low repayment rate in order to keep the monthly loan instalment as low as possible. Banks are again offering lower initial repayment rates and no longer necessarily expect a minimum repayment of two percent. Borrowers should nevertheless check the possible repayment carefully: The lower the repayment rate, the longer it will take to repay the loan.

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