Turnaround in interest rates: the dream of owning a home is shattered

There is currently a lot of discussion in the professional world about when the European Central Bank will finally raise its key interest rates.

After all, the inflation rate has now risen to more than 7 percent.

In practice, however, the turnaround in interest rates has long since arrived.

Anyone who is thinking about buying a property is experiencing this with great suffering.

The same applies to those who have to extend their existing credit.

In the past few decades, building interest rates have never risen as quickly and drastically as they are now.

At the beginning of the year, interest rates of 0.9 percent were common for ten-year fixed interest rates, but they are now 2.5 percent.

This isn't about peanuts.

For most people, the most expensive financial transaction of their lives has almost tripled in cost.

This messes up a lot of calculations.

A building loan of 300,000 euros now costs 60,000 euros in interest over ten years instead of 20,000 euros.

Loans are repaid correspondingly slower or unaffordable.

The dream of owning a home can therefore burst for many in the new world of interest rates.

At the very least, new calculations should be made with a sharp pencil, because the turnaround in interest rates comes at a time when construction costs are rising drastically.

The listing by the Federal Statistical Office ranges from solid structural timber (plus 77 percent) to welded wire mesh (plus 53 percent) to epoxy resin (an important binding agent for paints and varnishes, plus 29 percent).

Added to this are shortages and cost increases for construction workers.

But the price increases for existing properties are also continuing.

While there was a standstill here in Germany between 2000 and 2010, prices have been climbing more and more clearly from year to year since then.

So far, buyers have been able to console themselves with the fact that at least the financing of the high purchase prices has become cheaper and cheaper.

Now you have to recalculate.

Calculate soberly

In this environment, is it still worth buying a property at all?

For owner-occupied real estate, this has always been not just a financial question, but a personal life decision.

How much independence from the landlord is worth is difficult to quantify.

However, it is more important to calculate soberly what is affordable.

As a rule of thumb, a loan amount that does not exceed 108 monthly net salaries is considered manageable.

Or a monthly loan installment that is no more than 30 to 35 percent of household income.

The follow-up costs associated with owning a property should also be considered.

If the roof breaks or the heating breaks, there is no longer a landlord who pays for it.

If prices continue to rise as before, there is no need to worry about the German real estate market and its financing: As a rule, the property can be sold again without a loss.

All in all, real estate in this country is solidly financed, and defaults on loans are rare.

However, rising interest rates mean higher risks.

Buyers' budgets are limited.

They therefore agree on shorter terms for their loans with lower repayment installments in order to be able to afford the more expensive interest rates.

When considering whether buying or renting is the more financially sensible option, the interest rate plays a decisive role.

Viewed soberly, the decision in favor of tenancy should now be made more often, especially since rents have risen far less rapidly than purchase prices in recent years.

Owning your own home is becoming an option for fewer people

Ultimately, fewer people will now be able to afford their own home.

Politicians can accept this.

However, if it is interested in more private investment in living space, it must design the framework conditions accordingly.

Then they must not saddle up with further expensive specifications for the renovation of heating systems, roofs and insulation and for generating electricity.

For new buildings, too, corresponding requirements lead to ever further increases in costs, which exclude more and more people from owning their own home for financial reasons.

The bottom line is that buying a home is always a big financial risk.

In addition to the carefully considered financing, more time should be put into the selection of the property.

Everyone has to find their own way to their own dream house.

This is still possible with 2.5 percent interest.

And with 7 percent inflation, the debt at least depreciates to a certain extent all by itself.