This is how the interest rate turnaround is already making itself felt in construction rates

For years now (see our 2018 blog post here), experts have been anticipating the turnaround in interest rates. But with inflation fueled by the Ukraine war (currently at 7.3% in Germany), the ECB (European Central Bank) is coming under pressure to raise key interest rates. While the U.S. Fed has already accomplished this and even plans to follow suit, the monetary watchdogs in Frankfurt are likely to remain on hold until the summer (sources: ECB Council member Rehn: rate hike in July "warranted" (Handelsblatt 09.05.2022); ECB Director Schnabel: "Now it is no longer enough to talk, we must act. From today's perspective, I think an interest rate hike in July is possible." (ARD / Tagesschau 04.05.2022)). As a precursor to a turnaround in interest rates, they are planning to end their multi-billion bond purchases, if possible, this summer.

What does the interest rate turnaround mean for commercial financing??

After a long period of constant interest rate development at very low levels, we will certainly have to face interest rate increases in the coming months after a long time. In times of such high and clearly above-average inflation, investments in tangible assets offer reliable protection against a possible devaluation of money – such as real estate, for example.

How are the interest rate turnaround and construction rates related now?

Real estate is still one of the most popular investments – even though prices for real estate financing have doubled in the last year. But why actually?

Key interest rates are still in the basement, even if we wait for the turnaround in interest rates. The prime rate is 0%, the credit interest rate not much higher. It is because construction interest rates do not depend on the key rate of the European Central Bank, rather they depend on the performance of federal bonds. And DA the interest rate turnaround is already being felt!

Last week, the yield on the 10-year federal bond topped 1% for the first time in seven years – and that's why construction loans are getting more expensive!

Significant additional costs per month

For a construction financing, this means then for a loan with a term of 10 years over a volume of 300.000 Euro monthly additional costs of 400 Euro per month. The increased cost of building materials is also taking a toll.

So if you're thinking about financing a property or follow-up financing, you shouldn't wait any longer, because any increase in interest rates, no matter how small, will then cost precious liquidity from your business assets over the financing period.

Checking and comparing reduces risk

It pays to compare and review offers. But don't wait too long, interest rates are currently changing daily and binding offers only have a validity period of 5 to 10 days. With our expert tips, you can optimally limit the risk for your real estate loan and still benefit from comparatively favorable financing now.

One thing is for sure: interest rates for construction and real estate financing will rise. The right advice can save you cash, and a forward loan can help you reliably plan for repayment.

Do not wait too long! No one can accurately predict how interest rates will evolve in the current climate. It is advisable to submit a financing request now in a very timely manner to secure interest rates that are still moderate. Are you also thinking about real estate financing combined with subsidies. This is a stable-value investment in the future of your business, especially if you then equip your commercial property to the cutting-edge standards of energy efficiency. And with an interest rate hedge or forward loan, you can also control costs for the future.

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