Property owners who took out property financing in 2016 with a low repayment rate are facing potentially significantly higher monthly instalments for the follow-on financing due in 2026. This results from the increased interest rate development since 2016. A current study by ImmoScout24 examines the effects of these interest rate shifts, as well as the simultaneous increase in property values across all German districts (Landkreise) and independent cities (kreisfreie Städte).
The analysis shows that borrowers who have hitherto serviced their loan with a one percent repayment rate can expect a monthly increase of around 82 percent in follow-on financing, assuming the same repayment rate and an adjusted nominal interest rate. With a two percent repayment rate, the increase is about 36 percent, while an initial repayment rate of three percent results in an increase of only around six percent. The terms of the follow-on financing are not solely determined by the new interest rate, but also by the remaining debt and the current market value of the property.
During the low-interest phase, many buyers secured financing for the purchase of residential property. Ten years ago, in 2016, interest rates for loan agreements with a ten-year fixed-interest period were approximately 1.4 percent. Currently, the nominal interest rate for comparable financing is around 3.9 percent. This development coincides with a significant appreciation of property values across Germany. Price developments since 2016 vary regionally, from 35 percent in Ingolstadt to 113 percent in the district of Oder-Spree.
Dr. Gesa Crockford, Managing Director of ImmoScout24, points out that a renewed property valuation is relevant for impending follow-on financing. A property value that is now significantly above the original purchase price can positively influence the loan-to-value ratio, which in turn can create scope for more favourable terms. Early, professional advice is essential to examine various options for follow-on financing.
Based on model calculations with original loan amounts of 350,000, 550,000 and 750,000 EUR, financed at 1.4 percent in 2016, and continued financing of the remaining debt at 3.9 percent, the effects are clarified. A loan of 350,000 EUR with one percent initial repayment and a monthly instalment of 700 EUR results in a remaining debt of approximately 312,455 EUR after ten years. Continued financing of this remaining debt at 3.9 percent interest and still one percent repayment increases the monthly instalment to approximately 1,276 EUR, which corresponds to an increase of around 82 percent. For higher initial repayment rates, the additional burden is lower; for example, with three percent repayment, the increase is only about six percent.
Purchase prices in Germany have risen across the board since 2016, by an average of around 71 percent. Particularly pronounced increases are recorded in regions with a comparatively low price level in 2016 and high demand, often due to their proximity to metropolitan areas. Peak values were reached in the district of Oder-Spree (+113%), Holzminden (+109%), Ostprignitz-Ruppin (+105%), and Märkisch-Oderland (+104%). In large cities like Ingolstadt, Munich, and Stuttgart, the percentage increases are lower at 35 to 44 percent, as the initial level there was already higher, but still substantial.
For owners whose fixed-interest period is expiring, early and comprehensive advice is of high relevance. The amount of the remaining debt is a central factor; a lower remaining debt reduces the impact of a higher interest rate on the new monthly instalment. Consultation meetings serve to assess the long-term affordability of the monthly burden, options for special repayments before the end of the fixed-interest period, and the evaluation of various options for follow-on financing. The question of whether the original purchase price or the current property value is used as the basis can also play a role in the choice of financing.
