Mortgage financing has become significantly more expensive as a result of the turnaround in interest rates.

The interest rate for ten-year real estate loans has risen from one to more than 3 percent since the beginning of the year.

But the Sparda banks, which are heavily involved in construction financing, are observing an unbroken desire for home ownership among their customers.

At the press conference on Wednesday in Frankfurt, Florian Rentsch, CEO of the Association of Sparda Banks, said: "Interest in a property is still very high, but forward-looking planning for long-term financing is important."

Markus Fruehauf

Editor in Business.

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Michael Voigtländer, Head of the Financial Markets and Real Estate Markets department at the German Economic Institute (IW), regards the long-term fixed interest rate of real estate financing as an important stability factor.

Due to the fixed interest rate, the risks of follow-up financing are moderate, he said at the event.

A phase of price corrections on the real estate market is not yet evident.

According to Voigtländer, this should only be expected from a building interest rate in the direction of 4 percent.

Due to falling real wages and rising interest rates, the boom in the residential real estate market is over for the time being.

Follow-up financing is manageable

"But the boom will not be followed by a crash, but rather a phase with slow or stagnating rents and prices," is Voigtländer's forecast.

While phases of rising interest rates can lead to mass foreclosures in other European markets, he considers the follow-up financing for German households to be manageable even with rising interest rates, because they mainly take out loans with long fixed interest rates and high repayments.

Association President Rentsch announced that the custody fees for customers are to be abolished in the near future thanks to the positive development on the interest rate market.

Some of the eleven Sparda banks, which also belong to the Federal Association of Volks- und Raiffeisenbanken (BVR), canceled the negative interest rates on large customer deposits on July 1st.

In November 2021, a judgment by the Berlin Regional Court caused a stir, declaring the custody fees of Sparda-Bank Berlin to be inadmissible.

According to the judges, the calculation of a custody fee for current accounts "is not compatible with the essential basic ideas of the legal regulation".

The Sparda-Bank appealed against this.

Permitted Custody Fees

Rentsch was now confident that the next instance would classify the custody fees as permissible.

He believes this to be a direct consequence of the European Central Bank's (ECB) still negative interest rate on deposits.

The banks have to pay a negative interest rate of 0.5 percent for their funds parked at the central bank.

A year ago, the former constitutional judge Paul Kirchhof classified the negative interest rates of the ECB as unconstitutional in a report for the Sparda banks.

Rentsch agreed with the request made the day before by BVR President Marija Kolak that the ECB should raise interest rates by 0.5 and not just 0.25 percentage points at its council meeting on July 21.

If the ECB were to concentrate on its core mandate of ensuring price stability again, a lot would be gained, he said.

In June he criticized the ECB's intention of not ending negative interest rates until September, "precisely because of the unbelievable inflation" for "not being objectively explainable".

Rentsch did not go into detail about the criticism of the ECB for taking too much account of the situation in highly indebted countries such as Italy in its monetary policy, or about its plans for an anti-fragmentation instrument.

In view of the challenges of the past year - the ECB's negative interest rate policy, the effects of the BGH ruling on fee increases and the aftermath of the corona pandemic - Rentsch was satisfied with the result.

The net profit for the year after taxes fell from 70.7 to 55.2 million euros, which was mainly due to the special charges from the Federal Court of Justice ruling on the fee increases.

Without them, 2021 would have been a good year, so it was only a satisfactory one, said association board member Uwe Sterz.

While the Volks- und Raiffeisenbanken expect a significant drop in earnings this year, Sterz considers it difficult to make a forecast.

Operationally, the year has gone well so far, even if valuation losses on fixed-interest securities have to be coped with.

The rise in yields on bonds is associated with a fall in price.

However, since yields have recently fallen significantly again, prices have recovered again.