The interest rates for mortgage lending are also at a low level during the Corona crisis. How these could develop in the coming year and what that means for potential builders is discussed by the financing expert from Dr. Klein Baufinanzierung, Michael Neumann, in the course of a press release.
Low interest rates despite the crisis
The European Central Bank (ECB) has been pursuing a low interest rate policy for a number of years, with the key interest rate within Europe being set to zero percent in 2016. This low interest level has a direct effect on the costs of construction financing, so that construction loans have been granted particularly cheaply for some time now.
In the crisis year 2020, mortgage rates continued to fall, reaching lows of less than 0.4 percent for loans with a ten-year fixed interest rate. Michael Neumann, chairman of the board of directors of the mortgage broker Dr. Klein, in a press release published by the company.
Will interest rates continue to fall in 2021?
Neumann does not see a need for a construction loan to be concluded in 2020 in order to benefit from the low interest rates. “Construction financing remains cheap,” comments the expert. This is the result of the ECB’s policy, which will keep the supply of money on the market high in the coming year in order to maintain the current level of bond prices.
“If the economy recovers well next year and inflation is expected to rise, the currently very small difference between long and short maturities could widen again. Overall, however, we will continue to see low interest rates ”, argues Neumann. This means that, according to the expert, only the interest rates on long-term loans with a corresponding fixed interest rate could rise conditionally in the coming year.
However, Neumann considers the speculation that interest rates could possibly slide into negative territory to be unlikely, as the technical effort that banks would have to put into this would be too great. In addition: “As long as the market does not fall dramatically, from my point of view it does not matter whether the interest rate is minus 0.1 or plus 0.1 percent,” says Neumann. The current interest rate is currently not the directing aspect of whether a building loan should be taken out or not.
Real estate prices rise despite the crisis
For the price development of the properties in 2021, Neumann expects the current upward trend to continue. The corona crisis was also only able to slow down the sustained rise in property prices to a limited extent, and the demand for property is at a consistently high level. Neumann explains: “Especially in metropolitan areas and regions that are generally economically prosperous, buyers and builders must expect real estate to become more expensive in 2021 as well.”
Nevertheless, despite the current prospects – low interest rates and rising property prices – buying a property should not be approached compulsively and as quickly as possible. “It is important to find the right property and to approach the project carefully,” advises Neumann.
The expert suggests any need for action to those who already finance a property. Here it could be worthwhile for builders to restructure the financing, provided the contract allows, the financing expert explains in an interview with Das Investment.
This could be profitable for long-term loans in particular, because the interest rate situation has improved since then, which is why the conditions of ongoing financing could be adjusted. According to Neumann, this can reduce the monthly financial burden.
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