Not only real estate prices, but also interest rates are now rising rapidly. This also has an effect on demand – and on the behavior of prospective buyers. Is owning your own home becoming unaffordable? The market compass construction financing paints a clear picture.
The turnaround in interest rates is here. And it's happening much faster than expected. For the end of 2022, the experts at FMH-Finanzberatung are already predicting four percent interest on a building loan with a ten-year fixed term. In addition, raw material and energy prices are rising. These are fundamental changes compared to previous years. Does this affect the behavior of private real estate buyers? And how are their funding preferences changing?
A current study by the data specialist FMH X and the analysis institute SWI Finance (SWI), which is available on ntv, deals with these questions. To do this, the experts at FMH financial advice evaluated more than 20,000 inquiries that the online mortgage lending calculator received between 2016 and 2022. The analysis was flanked by a representative online survey by SWI in June 2022. 2000 participants provided information about their level of knowledge and their interest in building finance.
The figures from FMH-Finanzberatung first of all show the tremendous increase in real estate prices. Between the first quarter of 2016 and the first quarter of 2022, they shot up almost 80 percent. The inquirers have to pay higher and higher prices for properties of the same value.
Accordingly, customers asked FMH about increasingly expensive real estate: In the period under review, potential purchase prices rose significantly more than income and rents. This means that buyers have to put a higher proportion of their income into financing. Actually. The equity ratio has also risen massively in recent years.
While in 2016 it was still 26 percent of the purchase prices requested, it is now around 34 percent. Since this development cannot be attributed to a corresponding increase in income, the increase could be due to gifts or inheritances. It is also conceivable that the real estate market will increasingly become a playground for the more affluent.
However, the FMH does not yet see any dramatic upheavals in the real estate market. However, it is already clear that people's financing behavior is changing: In view of the rise in interest rates and prices, customers are putting a significantly higher proportion of their household income into financing than before: in 2020, the average proportion of the monthly installment in the family income was 22.8 percent . In 2021 it was already 23.5 percent and in 2022 even 26.1 percent.
However, the value is still far from the load limit assumed to be critical. It is 35 percent. In addition, the average fixed interest rate of 13.4 years in the first quarter of 2022 is still high. This increases the ability to plan and stabilizes the market. Still.
Because there are also problematic developments: For example, the annual repayment rates have fallen by almost a quarter since their peak in 2018. On average, those asking about 3.2 percent choose a lower initial repayment today than at the beginning of the observation (about 3.8 percent). They are still above the recommended minimum repayment of two to three percent of the loan amount. Nevertheless, this development means that buyers have to pay off their debts more slowly because otherwise the monthly payments would overwhelm them.
Overall, the study comes to the conclusion that the situation for those interested in real estate is becoming increasingly critical. The pressure on borrowers continues to mount. It is also fitting that in the SWI survey, a whopping 23 percent of those with higher incomes are of the opinion that mortgage lending is now too expensive for them.
Almost 40 percent of those interested in real estate also calculate with a donation or inheritance when it comes to building finance. Their share increases steadily across income groups. Almost half of interested parties with more than 6,000 euros per month expect such funds, while in the income groups below 2,000 euros per month it is only 34 percent. This trend reinforces the existing wealth gap between income groups across generations.
Max Herbst is the owner of FMH Finanzberatung, which has been providing independent interest rate information since 1986.
(This article was first published on Monday, July 11, 2022.)
