Interest rate development 2022 – forecast for the second half of the year

Interest development 2022 - building money interest in the historical comparison still favorably

The capital market is on the move. After interest rates had remained at historically low levels for almost 10 years, the interest rate development in 2022 shows a surprisingly strong upward trend, which has also surprised all the experts. At the beginning of the year 2022 also the serious commentators meant that building money will settle by the end of the year at a maximum of 3 percent. These predicted 3 percent are now already reached in the middle of the year. This naturally raises the question of how construction interest rates will develop in the 3. And 4. Quarter of 2022 will continue to develop.

ECB raises interest rate to 0.5 percent, ending zero interest policy

At first glance, this is bad news for anyone currently planning to buy real estate. This ECB decision of 22. July 2022 makes it likely that the interest rate on construction loans will also continue to rise. This step was urgently necessary from the point of view of the monetary guardians, since one needs an instrument for the slowing down of the likewise fast rising inflation. In response to this decision, most commentators write that this step firstly comes too late and secondly may have turned out too small. For currently high inflation meets a growing fear of recession.

The good news: analysts have already expected and partially anticipated this interest rate hike. Therefore it is to be assumed that already before this decision 0.25 to 0.30 per cent of this increase in the up-to-date demanded building financing interest were already eingepreist. From this perspective, only a slight increase can be expected now.

Interest rate development in 2022 – will the construction interest rate settle at approx. 4 percent one?

First one must realize that still in the year 2000 the interest rate was still over 6 per cent. And that was indeed cheap at that time, because in the 1990s also around 10 percent were called. In 2007/08, it was still trending around 5 percent, only to fall to 4 percent in 2010 and subsequently to the hostoric interest rate low. From the historical point of view of the last 30 years, an interest rate of approx. 4 percent on a 10-year loan can be regarded as quite favorable.

There are other factors suggesting that the interest rate development in 2022 in the 2. Half-year will not continue to rise sharply. One of the reasons is that due to the uncertainty in the market caused by the ukraine war, raw material shortage,pandemic and related supply shortages, the demand for construction financing loans in june and july 2022 has plummeted massively. This is confirmed by banks and construction financing intermediaries alike. Therefore, it is to be expected that banks will not turn the interest rate screw vigorously. Because construction financing is an important business area for them and the competition among them is great. Real estate purchase prices are also expected to stagnate or even decline, as demand also decreases. These factors lead us to believe that the 4 percent scenario by the end of 2022 is quite realistic.

Interest rate hike in 2022 as a challenge for real estate buyers

For real estate buyers, increasing or. Higher interest rates always a problem: for a long time, low-cost construction financing compensated for property price increases. Now, however, buyers are having to finance expensive properties at much higher rates than just a few months ago. Only a higher level of equity can counteract this.

On the other hand, if you look across the border to england, france or the USA, real estate prices in this country are still comparably low – apart from a few central locations in the conurbations of the major cities.

What is also striking about the current demand scenarios is that there is hardly any demand for new construction financing at the moment. This is due to the uncertain situation on the raw materials and building materials market, where it is not possible to plan with any degree of certainty for the future and stable prices. Focus is on inventory properties. Because here you can also get quite favorable financing through an intelligent concept of purchase financing and redevelopment funding. But always under the condition that an adequate equity ratio can be brought along.

Basically, experts advise prospective buyers not to wait for better conditions. From a historical perspective, a 4 percent financing rate is still considered favorable

Interest rate development in 2022 from the perspective of follow-on financing

Owners who took out construction loans between 2012 and 2013 at interest rates of around 2.5 percent should consider exercising their statutory right to terminate the loan after 10 years in order to secure interest rates for subsequent financing below 4 percent for the future.

You should also find out now about the possibilities of a forward loan. With such a loan, the current interest rates can be secured for the future. This can be worthwhile if interest rates are expected to continue to rise.

It is certain that the times of absolute cheap loans are over. This could present many owners with financial challenges, because with the expiration of the fixed interest rate after often ten or 15 years, the follow-up financing is pending. This is particularly problematic for owners whose income only permits low repayments. But even then, a new strategy on the part of the banks may be of help. Already some are offering 1 percent repayment again and it appears that this trend will now be enabled by almost all -even large- banks in the future. A 1 percent repayment will extend the time it takes to pay off the loan in full, but will keep the monthly burden in check.

If the residual debt is still high and the borrower cannot bear higher costs, interest rate increases are particularly dangerous. In the worst case, the financing threatens to collapse. Consumer advocates therefore advise that before taking out a loan, you should always honestly calculate whether the financing would still be viable with interest rates of three or four percent.

Interest rate development in 2022 – banks will no longer pay anything for their deposits

Savers know this: banks charge money for depositing money in checking accounts. The background is that banks have also been charged negative interest rates for their deposits up to now. This scenario will also soon be history due to the ECB's interest rate hike and the resulting consequences. Conversely, this means that banks save money. And it is quite possible that they will pass this saving directly on to the consumer. Because so you can offer in the hotly contested credit market compared to the competition more favorable building loan rates.

There is some evidence to suggest that interest rates in the 3. And 4. Still rising slightly in the third quarter and reaching the 4 percent mark with a ten-year fixed interest rate and corresponding equity capital. The interest rate for construction loans is also indirectly based on the yield of government bonds. Banks trade in so-called pfandbriefe to refinance the real estate loans. These are fixed-rate securities that you sell to investors. The investors receive interest. The interest rate on pfandbriefe tends to follow the yield on ten-year federal bonds. At the beginning of the year, ten-year federal bonds were still yielding just under minus 0.2 percent; now it's over one percent with a rising trend.

Construction financing 2022 – good advice is not expensive

The entire credit market is characterized by many variables. These are currently particularly volatile. For private individuals, an almost impenetrable web of dependencies that have a direct impact on construction financing. Therefore it is advisable to call in the expertise of bank-independent experts. Here's how ACCEDO AG always provides advice completely free of charge. This will give you a comprehensive overview of your options and feasibilities. Despite many reports to the contrary: from a historical perspective, real estate financing in the current situation is still favorable and can still be implemented in a future-proof manner by combining various building blocks such as equity ratio, subsidies and grants, combinations with home savings contracts and the like.