Building interest rates below three percent again in individual cases

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New housing estate near Cologne: Trend of sharply falling building interest rates unlikely to last

Photo: Christoph Hardt / IMAGO / Panama Pictures

Building interest rates have been falling for weeks – for real estate buyers with very good creditworthiness, they have now fallen below the three percent mark, according to a new study. This is shown by an evaluation of the comparison portal Check24.

At the beginning of the year, the best possible interest rates for ten-year mortgages were 2.93 percent – 0.36 percentage points lower than on December 1, 2023. "The lower yields on ten-year German government bonds and the easing inflation are causing construction interest rates to fall," said Ingo Foitzik, Managing Director of Construction Financing at Check24. The banks have already priced in this development."

Thanks to the lower interest rates, real estate buyers can save a lot of money: With a construction loan of 400,000 euros and the best interest rate of 2.93 percent per year, interest costs of 104,569 euros will arise until the end of the ten-year fixed borrowing rate, Check24 calculates. In this case, the monthly instalment is EUR 1643. Compared to an interest rate of 3.29 percent at the beginning of December, buyers saved 12,673 euros in interest costs at a monthly rate that was 120 euros lower.

Stock markets hope for key interest rate cuts

On the capital market, expectations are high that central banks will cut key interest rates in 2024 if inflation falls. The inflation rate in the eurozone, which is decisive for the European Central Bank (ECB), rose again to 2.9 percent in December. However, inflation has tended to weaken over the course of 2023 – as recently as autumn 2022, it was at a record high of 10.7 percent.

Yields on ten-year German government bonds have fallen sharply since their peak in the autumn – and with them the mortgage rates that are based on them. For real estate loans with a ten-year term, the Frankfurt-based FMH financial consultancy has observed a decline in construction interest rates of around 0.8 percentage points since the end of October.

Check24 comes up with a value of 3.16 percent when looking at average building interest rates over ten years. With a financing of 400,000 euros and this interest rate, interest costs of 112,670 euros would arise until the end of the ten-year fixed borrowing rate, the comparison portal calculates. Compared to an average interest rate of 1720.3 percent last December, real estate buyers saved 34,6329 euros in interest costs at a monthly rate that was 60 euros lower.

A lot of downward pressure on interest rates already anticipated

Check24 expert Foitzik does not expect the trend of sharply falling construction interest rates to continue. "In the coming weeks, we expect a sideways movement rather than a sharp fall in interest rates."

Economists at Deutsche Bank expect construction interest rates to rise again over the course of the year. Analyst Jochen Möbert expects inflation in Germany to remain above 2 percent even in the face of rising wages, which is why mortgage rates should rise again in the course of 2024. By the end of 2024, Möbert expects 5- to 10-year mortgage rates to rise again to 3.8 percent, he wrote in a recent study.

mik/dpa