The demand for real estate is unbroken: In Corona times, many people place even more importance on a beautiful home. Pandemic fuels construction loan business – but terms deteriorate
The new business of banks and savings banks in Germany with construction loans grew to a record of 273 billion euros after 263 billion euros in 2019.
According to the report, the stock of construction loans issued to private households by banks and savings banks amounted to almost 1 4 trillion euros, shows a new study by the consulting and auditing firm PwC The year before, the loan stock had been 1 3 trillion euros. However, the conditions of construction loans have deteriorated recently. This means higher costs for real estate buyers.
Interest in real estate continues unabated despite adversity
The business with building loans, which has been running well for years, got a boost last year with the Corona pandemic, shows the study published on Thursday and available to dpa. According to the study, the growth of the loan portfolio accelerated to 6.6 percent per year in 2020. Only in June had there been a damper because of the first lockdown. In 2019, low construction interest rates and higher property prices had pushed the construction loan portfolio up 5.7 percent.
"Despite rising and the economic uncertainty, the interest of private customers in real estate is unbroken," says Tomas Rederer, partner and credit expert at PwC Germany. "Conditions for construction loans are likely to remain attractive in the medium term and continue to fuel demand."
In the pandemic, demand for apartments and houses has continued to rise. In times of lockdowns and home offices, many people attach importance to a nice home with more space, in addition, interest rates are low and there is a lack of investment alternatives. Driving up prices: Real estate buyers had to pay an average of 7.4 percent more in 2020 than in the previous year, data from the Federal Statistical Office showed.
Loans for home buyers have become more expensive
According to the PwC study, many home buyers are securing low interest rates for the long term: According to the study, the average term of new construction loans was more than eleven years for the first time. Since the real estate prices rise in many places and not everyone can raise accordingly more own capital funds, the credit volume often also grows.
Real estate buyers last year still brought an equity ratio of 20 percent, show data from construction financier Huttig & Rompf. That was four points less than in 2016. On average, owner-occupants paid purchase prices of 493.000 euros.
Since the beginning of the year, however, loans for real estate buyers have become more expensive. Interest rates for ten-year loans rose by almost 0 2 percentage points in the past two months and now average around 0 9 percent, observes the Munich-based mortgage lender Interhyp Interest rates climbed in line with the general level of yields on the stock markets, such as for federal bonds. Investors expect significantly higher inflation rates as they count on the Corona pandemic subsiding and the economy recovering. The sometimes enormous government aid, for example in the USA, is also likely to drive up inflation rates.
Construction money is cheap and will remain so
"Overall, the construction financing market has risen from the lows by quite a bit," also says Ditmar Rompf, CEO of competitor Huttig & Rompf. The longer the fixed interest rate, the higher the increase. The Frankfurt FMH Finanzberatung currently sees standard conditions of 0.81 percent for ten-year construction loans. Recently, this has not changed much.
Real estate buyers could continue to finance cheaply, says Mirjam Mohr, Member of the Board of Management for Direct Channel Business at Interhyp. A look at earlier years, when interest rates of four percent and more were not uncommon, puts the increase into perspective, he said. "Construction loans are still very favorable and will remain so in view of the effects of the pandemic and monetary policy."
In fact, the European Central Bank and the U.S. Federal Reserve Fed are maintaining a loose monetary policy despite higher inflation prospects. That dampened bond yields, says FMH real estate expert Max Herbst. It counts in the course of a rising inflation however on the fact that the interest for ten-year building loans rises in the course of the year over the mark of one per cent.
That meant limited additional costs for real estate buyers. With a loan of 250.000 euros, a ten-year term and three percent repayment would result in a difference of 4500 euros measured against current conditions. Prospective buyers could see this calmly and should not conclude a contract hastily, means autumn. "If a financing fails at 4500 euros, it is better it does not come at all."