Building interest rates are currently well below the level of 2023, with experts predicting interest rates to remain in a corridor between 3.5% and 4% until autumn. Our experts believe that the price corrections on the property market should be largely over. This opens up numerous opportunities, especially for investors looking for high-yield and secure forms of investment.
Building interest rates for ten-year loans are currently at 3.67%. This is well below the level of 2023, when construction interest rates peaked at more than 4.2%. The downturn in interest rates that we saw towards the end of 2023 is making property more affordable, which is why demand for flats and houses has picked up again significantly since the start of the year. The property market is recovering - albeit in small steps.
How are building interest rates developing?
Our experts assume that mortgage interest rates will remain at a constant level of between 3.5% and 4% in the coming weeks. In the medium to long term, i.e. in a period of six months to a year, we even expect interest rates to fall.
Importance of low interest rates for property financing
Low interest rates are a decisive factor for property investors. They reduce financing costs and increase the chances of returns. In a phase in which construction interest rates are noticeably below the highs of the previous year, there are particularly favourable conditions for purchasing property. A long-term fixed interest rate can give investors additional planning security, which is valuable in an uncertain economic environment.
Will the EZB cut interest rates further?
The next interest rate decision by the European Central Bank (ECB) is coming up. In the run-up, the financial sector is speculating whether a further interest rate cut will take place. The ECB is increasingly reluctant to cut interest rates further. Wage and inflationary pressures are too great. If the ECB really only cuts the key interest rate once or twice this year at most, little will happen in terms of capital market interest rates. There is a high risk that there will be fewer rather than more interest rate cuts and therefore also the risk that capital market interest rates will even rise slightly once again.
Will there be no further price corrections on the property market?
The question remains as to how the lower level of building interest rates will affect property prices and how they will develop in view of the slight recovery on the market. We assume that the price corrections on the property market are largely over. The price carousel is spinning faster again. Residential property prices in Germany rose by 2% between January 2024 and the end of May 2024. In metropolises such as Munich (+1.8%), Stuttgart (+2.4%), Frankfurt (+3.2%) and Berlin (+2.1%), even higher increases were recorded, while prices in Hamburg remained unchanged.
The long-term drivers of demand for property remain intact. According to our surveys, owning their own home remains one of the top 3 wishes of Germans, alongside health and security in old age. The temporary uncertainty in the property purchase market last year has caused rents to rise sharply, making buying much more attractive again in comparison.
Real estate as an asset
If property is viewed as an asset, there are many advantages. They are both an inflation-resistant investment and a source of income through rental income. Long-term investors benefit from the increase in value of their property and secure a constant source of income through regular rental income, which contributes to retirement provision. Especially in times of low interest rates, these aspects significantly increase the attractiveness of property investments.
Focus on existing properties
We recommend that prospective buyers take advantage of opportunities in existing properties. Properties with low energy efficiency currently offer favourable entry opportunities. Compared to the beginning of 2022, prices for properties in energy classes B to F have fallen by an average of 17%. Prices for unrenovated properties in classes G and H have fallen even more sharply - by 22%.
Overall, the current low interest rates, the stabilisation of property prices and the continuing high demand for housing represent a promising combination for property investors. With targeted financing strategies and a focus on long-term wealth creation, the property market currently offers attractive opportunities for yield-conscious investors.
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Kind Regards
Matthias Holzmann
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