The European Central Bank (ECB) has raised its key interest rate, a measure that must be assessed as a response to inflationary pressures in the Eurozone, particularly driven by energy prices. This development recently caused inflation to rise to 3.2 percent. Jörg Utecht, CEO of Interhyp Group, commented on the market situation, emphasising that the ECB's rate hike gave no cause for concern for property buyers, as capital markets had anticipated and priced in this increase in the preceding weeks. He highlighted that the scope for further key interest rate hikes appears limited due to the economic weakness in the Eurozone.
Currently, mortgage rates for ten-year loans are showing a plateau around 4 percent. Utecht advises prospective buyers to conduct a comprehensive comparison of banks, as the conditions offered by individual institutions can vary significantly. This enables them to secure more favourable terms. Temporary small interest rate movements continue to offer good entry opportunities for property buyers.
Expert Assessment of Interest Rate Development and Follow-on Financing
A current Interhyp bank panel confirms this assessment: 75 percent of the surveyed institutions expect mortgage rates to remain stable in the short term, while 25 percent anticipate rising rates. In the long term, all experts forecast a stable interest rate level. One expert within the panel noted that the ECB would act cautiously and had no interest in further burdening already weak economic growth with excessive rate hikes. This could lead to a slight easing on capital markets, though a significant decline in interest rates is not expected. Capital market rates should develop largely horizontally in the second half of the year.
For households requiring follow-on financing, current interest rate developments are also significant. Many financings from the low-interest rate period, whose fixed-rate terms end in the coming years, will need to be extended at higher rates. However, an Interhyp analysis for financings with fixed-rate terms between 2026 and 2030 showed that the average monthly burden had not increased, but rather slightly decreased. This results from a lower average loan volume at the time of initial financing (approx. 305,000 EUR in 2016) and a reduced outstanding debt for follow-on financing (approx. 220,000 EUR after ten years, representing a reduction of around 30 percent). Assuming an interest rate of four percent and 1.5 percent amortisation, a monthly instalment of 1,002 EUR would be incurred, compared to 1,044 EUR for the initial financing.
Jörg Utecht points out that despite increased mortgage rates, there is no widespread overstretch in follow-on financings, as many customers are financially better positioned and a significant portion of the loan amount has already been repaid. Several factors contribute to four percent interest rates appearing manageable for most financings. The proportion of critical follow-on financings is below one percent of all cases considered by Interhyp.
Reasons for the Manageability of Higher Interest Rates and Recommended Actions
- —Lower loan volumes: Financing amounts ten to fifteen years ago were below today's sums for initial financings.
- —High amortisation payments: During the low-interest rate phase, the initial amortisation averaged over three percent, leading to a reduced outstanding debt.
- —Increased incomes: The net household incomes of affected customers have significantly increased since initial financing, further enhancing financial viability.
Given these circumstances, Jörg Utecht advises homeowners to actively address follow-on financing two to three years before their fixed-rate term expires. Early preparation creates freedom of choice, regardless of future interest rate levels.
