REAL ESTATE LOAN DURING INFLATION & RISING INTEREST RATES

Property prices have been high in recent years – but financing has been relatively cheap. For prospective buyers, it has therefore still paid off to buy a property and finance it with a loan from the bank. With the key interest rate being raised to 0.5% and high inflation, this could now change.

The situation for buyers before the prime rate hike

For years, interest rates for real estate financing were at an absolutely low level, with the prime rate at 0%. At the same time, the low interest rates meant that investors in other forms of investment only generated low returns, making real estate even more attractive. Supply became scarcer, while demand continued to rise. Berlin in particular is one of the most sought-after residential locations in Germany. This is also reflected in the vacancy rate of 0.8%. Living space is in short supply in the German capital. The flight of many city dwellers to the surrounding areas of Brandenburg has also increased demand and prices for real estate here.

How interest rates and prices have changed with inflation

Even before the European Central Bank raised the key interest rate to 0.5% in July 2022, property prices were already on the rise. The rate of inflation had not been this high for a long time, meaning that property prices have also risen. Prices for both existing properties and new builds in Berlin rose by 15% and 9% respectively in 2021 compared to the previous year.

However, the key interest rate hike is not so much causing property prices to rise, but rather the cost of building interest and financing. Two or more percentage points make a significant difference. At the same time, banks have tightened their requirements for real estate financing and are now checking loans even more thoroughly. They want to prevent loans from collapsing when interest rates rise. Financing should therefore not be calculated too tightly, especially as the required equity share has risen to up to 30% in some cases, depending on the bank.

How the real estate market in Berlin & Brandenburg could develop

As estate agents, we are monitoring the market very closely. A significant drop in prices is not to be expected on the Berlin real estate market – the housing situation is far too tense for that and demand remains high. People still want to live in the capital and the surrounding suburbs of Berlin. In addition, real estate itself remains a highly valued investment that will not lose value quickly. Real estate prices in Berlin are expected to stagnate. Furthermore, the supply of housing will not be able to meet demand in the foreseeable future. The market in the capital will therefore not ease as significantly as in other cities and regions of Germany.

As interest rates for real estate financing are now becoming more expensive, prospective buyers should promptly consider whether they would like to purchase a property in Berlin or Brandenburg. After all, further interest rate increases cannot be ruled out. It is important that every buyer calculates on a case-by-case basis: What are the financial possibilities, are there any reserves and do the loan conditions suit the project, at least for the fixed-interest period? Contact us and we at Victor Investment will advise you individually.