Building interest rates fall, building subsidy still uncertain

Inflation has fallen significantly. Interest rates for mortgages have recently stagnated with slight fluctuations. How construction financing will develop in the new year also depends on the federal government's budget situation. Continued generous subsidies would not only be good for climate protection, but also for the creation of urgently needed living space.

At the beginning of 2024, there are many positive signs that the situation is improving: the inflation rate is falling, energy and food prices are no longer rising, the recovery in real wages is accelerating, purchasing power is improving, a further rise in financing interest rates is rather unlikely, the German property financing index is continuing its upward trend, the ifo business climate index has risen and property prices are stabilising.

Despite this positive development, the European Central Bank is cautious about lowering key interest rates. Monetary policy must remain sufficiently restrictive over a longer period of time in order to ensure price stability. An interest rate cut is therefore currently out of the question. Various economists have expressed the expectation that the European Central Bank will cut the key interest rate in the second half of 2024 at the latest, possibly even in the first half of the year. In autumn 2023, interest rates were still approaching the 4 per cent mark, falling to 3.25 per cent at the end of the year.

Originally, the federal government had planned to provide generous funding for refurbishment and new construction measures. However, due to the judgement of the Federal Constitutional Court, the funds earmarked for this cannot simply be reallocated from the pandemic pot for other measures. The Kreditanstalt für Wiederaufbau (KfW) and the Bundesanstalt für Finanzdienstleistungsaufsicht (Bafa), which are responsible for awarding subsidies, have therefore already put some subsidy programmes on hold. Forecasts on the development of the nationwide subsidy landscape are currently difficult.

The federal government's current budget situation is a major problem for the property industry. Anyone who wants to buy, build or renovate a property now should definitely seek expert advice and check what new subsidy programmes are available.

(Photo: © Andreas H., Pixabay)