Financing remains the biggest hurdle when buying real estate

For the time being, financing remains a high, though not insurmountable, hurdle when buying real estate. The sharp rise in interest rates is also having an impact on the construction and modernisation of houses. All in all, the real estate market is currently very slow.

Although interest rates are not particularly high at the moment in historical comparison, real estate financing is much more expensive than in the recent past. The higher financing interest rates are associated with higher monthly instalments. The standard rate for a financing of 300,000 euros with a ten-year fixed interest rate, two percent repayment and 80 percent loan-to-value ratio is currently hovering around 1,500 euros.

In many cases, this shrinks the maximum possible credit line and prospective buyers have to look for cheaper properties than in times of extremely low interest rates. In April, the average loan amount for construction loans fell: it is now only 271,000 euros - the lowest amount in around three years. At the end of 2021, buyers and builders still borrowed almost 50,000 euros more for their property (319,000 euros).

Only six percent of respondents to a representative survey intend to purchase a property in the current year. In 2012, twice as many respondents, namely twelve percent, had stated this. Only the under-40s are still as active as in 2012. The desire to modernise is also currently lower than it was around a decade ago.

A change in the current situation is not expected for the time being. The European Central Bank (ECB) is slowing down its pace of raising key interest rates: for the first time since July last year, it is taking a smaller step than before with plus 0.25 percentage points. At the same time, central bank head Lagarde emphasises that interest rates must be raised further in order to lower inflation.

This current development continues to entail falling property prices. In Dortmund, Düsseldorf and Cologne, property prices fell for the second quarter in a row at the beginning of 2023. This is most evident in the Dortmund housing market, with a drop of 5.37 per cent compared to the previous quarter.

(Photo: © Alexander Stein, Pixabay)