According to experts, property buyers will have to be prepared for slightly higher borrowing costs in the new year.

Because with the rise in inflation, building interest rates are likely to rise, albeit from a low level.

Experts advise real estate buyers to secure favorable conditions for a long time.

Meanwhile, the boom in construction financing in Germany has continued, as a study published on Monday by the consulting firm PwC shows.

Another record year is ahead for real estate loans, it says.

Accordingly, the new business of banks and savings banks with mortgage lending increased from January to October to 235 billion euros.

In the same period last year it was 228 billion euros.

The building finance portfolio increased to 1.47 trillion euros in the first ten months and, according to information, has already exceeded the volume in 2020 as a whole (1.39 trillion).

"Low interest rates, a high savings rate and rising inflation rates should continue to have a positive effect on the growth trend in construction finance," says Tomas Rederer, partner at PwC Germany.

Conditions still remain "fantastic"

For real estate buyers, however, loans are likely to become more expensive soon. "I expect the interest rates for mortgage lending to rise by 0.25 to 0.5 percentage points in the coming year," says Max Herbst, founder of the Frankfurt-based FMH-Finanzberatung. But even with an increase in building interest in this area, the conditions are "fantastic". Fall does not see interest rates of more than three percent in the long run.

Hardly anyone believes that interest rates will rise sharply on the capital markets, but with high inflation central banks are under pressure to at least tighten their monetary policy, says Herbst.

This should also increase the general interest rate level.

The US Federal Reserve recently signaled several rate hikes for 2022.

And the ECB wants to let its Corona emergency purchase program for bonds expire at the end of March.

She expects inflation to be significantly higher in the new year.

"Take very good interest rates with you in the long term"

According to information from FMH, the interest for ten-year mortgage lending currently averages just under one percent per year. Herbst recommends long-term financing with a term of 15 to 20 years for house builders. "Why take the risk and not take the interest rates, which are still very good today, with you for long-term fixed interest rates?" He says. On the other hand, those who buy real estate not for personal use but for capital investment can also choose ten-year fixed interest rates and thus remain more flexible. "The building interest will probably fluctuate slightly in the foreseeable future."

The Munich real estate financier Interhyp also expects interest rates to rise.

In its trend barometer, for which Interhyp surveys ten German banks every month, the vast majority of experts expect higher interest rates in the course of the new year.

Interhyp board member Mirjam Mohr expects a slight rise in building interest rates "in the range of several tenths of a percentage point" in the medium term, also because of the monetary policy steps taken by the ECB.

What buyers should be aware of

Interested parties with a specific property in mind should not be unsettled by fluctuating credit conditions, advises Mohr.

A solid property with robust financing is more important.

"Equity and the amount of the repayment should be chosen so that when the fixed interest rate expires, so much has already been paid off that the financing remains affordable even if interest rates rise."

Other mortgage lenders also warn against overestimating the effect of building interest.

Mostly it is not the monthly rate that is the problem, but the high equity requirements, for example for real estate transfer tax, brokers and notaries, says Michael Neumann, head of the mortgage lender Dr.

Small.

Interest rates on the capital markets rose significantly over the course of the year before falling in the autumn.

With new corona worries, secure systems were in demand again.

The result: the yield on ten-year government bonds, which are based on building interest rates, fell.

"We do not believe that interest rates will return to their lowest levels," says Ditmar Rompf, CEO of the home financier Hüttig & Rompf.

He expects a sideways trend with a slight upward trend in the coming months.

Do not calculate too tightly

Rompf also advises property buyers on long-term financing.

“Fixed interest rates of at least 15 years are currently the preferred choice.” However, they would be bought with increased borrowing interest.

Buyers hit rising interest rates when their financing runs out but the property has not yet been paid off.

Then the interest on the remaining debt can climb.

This can be dangerous if interest rates rise rapidly or if financing is on the edge.

With an increase in building interest by 0.2 percentage points, the monthly rate would increase by 67 euros per month with a financing over 400,000 euros, calculates Herbst.

"If the financing fails because of this, you'd better let it stay the same."

Home buyers who already have ongoing financing and fear rising interest rates can take advantage of forward loans.

These continue the current interest rate for follow-up financing for a fee.

"Here, the low interest rates can be secured up to five years in advance with currently low forward surcharges," says Rompf.

Such loans made sense when interest rates rose.