In november, the construction interest rates for a ten-year loan rose to the highest level in a good two years. Is this already the peak? Or is to be expected with further increases? This question is on the minds of everyone who wants to finance a new building, start a refurbishment project or buy a condominium. Particularly due to the parallel price increases in the real estate market, the future development of the interest rate market will determine whether one can still afford real estate financing. Or whether a follow-up financing, which is due in the next few years, should possibly be brought forward by means of a forward loan. All experts are currently certain of one thing: the days of historically low interest rates are over. According to the 2022 interest rate trend, however, interest rates will not rise by leaps and bounds.
Inflation will influence the interest rate trend in 2022
The fact is that the rise in interest rates is mainly due to significantly higher inflation. Without the bond purchases and the zero interest policy of the european central bank the building interest would rise still more strongly. The ECB recently announced that it will continue to maintain its low interest rate policy. This statement calms the interest market for the time being. On the other hand, however, there have long been discussions in the USA about raising the key interest rate. However, an increase would not leave the european interest rate market untouched. The background to this in the USA is that inflation is developing even more rapidly there than in this country.
In the past, rising inflation was countered with a higher key interest rate. However, this entails risks that the ECB is afraid of. Because the pandemic is already weighing heavily on the economy. Just as rising inflation is holding back consumption and investment. An end to the loose monetary policy would then be a further burden on the economic development of the EU countries. Because of this mixture of factors, experts believe that real estate buyers will have to prepare for somewhat higher borrowing costs in the new year. Because with the rise in inflation, construction interest rates are also likely to rise. The good news is that the increase is likely to be moderate.
Construction financing loans will continue to be in demand in the new year
The boom in construction financing will bring germany a record year in 2021. In the first ten months of the year, new mortgage lending business at banks and savings banks has already exceeded the full-year result for 2020. The current low interest rates, a high savings rate and rising inflation rates are likely to continue to have a favorable impact on construction financing. Experts therefore believe that the interest rate trend in 2022 will be slightly upward. But one is not completely united there. The financing expert dr. Klein, for example, expects the construction interest rate for 10-year loans to rise from the current level of around one percent to two percent in the next two years rather than fall to 0.3 percent, according to its spokesman.
Another weighty voice in the market from financial expert max herbst expects interest rates for construction loans in 2022 to rise by 0.25 to 0.5 percentage points by the end of the year. During this period, the interest rate on construction loans will also fluctuate. But even with an increase in construction interest rates in this range, the conditions are "dreamlike". Interest of more than three per cent does not see autumn in the long term to come. As a reminder: a little more than 10 years ago, conditions around 4 percent were still considered absolutely favorable.
Interest rate trend 2022: no reason to hurry
Nobody, neither new nor connection financiers, must decide 2022 because of jumping interest rates fast and imprudently for a financing. The signs indicate that interest rates will remain low. More important than a short-term look at interest rate trends remains a solid, secure and comprehensively planned construction financing, for which you should also take the necessary time.
The interest rates for ten-year construction financing in 2021 averaged ca. One percent per year. The 2022 interest rate trend expects a construction rate for the year of 1.3 to 1.5 percent. This also continues to be extremely favorable in a decade comparison. Therefore, all who want to buy, build or follow-up financing in 2022 should secure this favorable interest rate as long as possible. Financing concluded in 2022 is therefore advisable, with a long-term perspective of at least 15 or 20 years of fixed interest rates.
The interest rate is not the decisive criterion in 2022
Even if the 2022 interest rate trend assumes more interest rate fluctuations during the year, one should not be irritated by these fluctuations. Rather, one must focus on a solid property with robust financing. Equity capital and height of the repayment should be used accordingly that with expiration of the interest connection of the building financing contract already very much is paid off and only one as small as possible remaining debt remains. Because then the follow-up financing is still feasible even if interest rates rise in 15 or 20 years.
According to the 2022 interest rate trend, the most important criterion for construction financing will not differ from the previous year: it is not the monthly installment of interest and repayment but the amount of equity that is decisive and thus represents the greatest challenge. Because equity capital is needed not only for the purchase of real estate, but also for the so-called ancillary costs for land transfer tax, real estate agent and notary.
Also important: the redemption. This ultimately determines the residual debt depending on the term of the construction financing loan. The surest protection against rising interest rates is to keep residual debt as low as possible. Thus one ensures a safe follow-up financing. That's why comprehensive knowledge of financing, subsidy and repayment options will be of particular importance in 2022. The choice of the financing lender also becomes important. Sound advice from an experienced construction financing broker can be a great help here. ACCEDO AG has a daily updated overview of the offers and conditions of more than 450 lending banks – with simultaneous in-depth knowledge of funding and loan opportunities.
The repayment schedule is the most important roadmap for secure initial and follow-up financing. Repayment and residual debt are the most important parameters here.