Even with the European Central Bank (ECB) lowering the key interest rate to two percent,construction financing isn’t getting any cheaper. This article explains this apparent contradiction and offers advice for prospective real estate buyers.

Financing a home remains a costly endeavor, especially since property prices aren’t declining. According to Oliver Adler from Bausparkasse Schwäbisch Hall, “The interest and the inflation rate stabilize, but the real estate prices are attracting a bit again and the energetic renovation comes into focus.”

A recent banking panel from construction financing consultant interhyp revealed that half of the experts anticipate stable interest rates, while the other half foresee another increase, perhaps reaching four percent for ten-year loans. One panel expert stated, “In the middle of the point of view, the foreseeable expansion of public fiscal expenses in the euro zone speaks for higher growth, higher inflation and thus also higher loan interest.” This suggests that markets are already anticipating developments beyond the current interest rate cycle.

Increasing construction interest rates would then meet moderately rising real estate prices – especially in coveted locations.

Recent events have highlighted the sensitivity of bonds to global political developments. When former US President Trump announced potential 50 percent tariffs on the EU, investors sought safer investments, driving up demand for federal bonds and impacting their returns.

oliver Kohnen, co-boss of the Baufi24 financing broker, cautions against a “double burden,” stating that “The phase of favorable financing of the ten years should hardly be repeated.” He warns that higher interest rates and inflation could return, leading to increased construction interest rates coinciding with moderately rising real estate prices, particularly in desirable locations.

For prospective buyers, it’s crucial to carefully consider fixed interest periods. shorter terms may offer advantages. mirjam Mohr, Interhyp sales officer, noted in the “Handelsblatt” that “The cheapest building interest rates can currently be obtained for loans with five years of borrowing. Here you are on average at just under 3.4 percent, for good credit ratings.” Longer bonds of 15 or 20 years average around 3.7 to 3.8 percent.

Expert Pfaffinger anticipates medium-term interest rates between 3.25 and 3.5 percent for ten-year loans. He, along with many market observers, believes that construction interest rates below three percent are unlikely.

The era of historically low building interest rates appears to be over. A new normal is emerging, with interest rates significantly higher than those of the past decade. This shift necessitates a fundamental realignment in the real estate market, as higher financing costs and moderately rising property prices alter the calculations for potential buyers.

Future real estate buyers will need to identify optimal financing windows and utilize flexible models. Forward loans and staggered interest bindings may become more prevalent, and a higher equity ratio is likely to be essential.

Banking supervision offers some hope for homebuyers. Bafin relaxed requirements for private construction finance on May 1st,reducing the extra capital buffer for residential property loans from two percent to one percent. According to authorities, “The vulnerability on the German residential property market have clearly, but not yet completely broken down.” This adjustment could potentially lower mortgage loan costs, as banks with lower equity capital requirements may offer more competitive interest rates.