Current interest rate situation for mortgage loans

Hello dear community,

this thread is intended to help current homebuilders or buyers of a property to assess the current interest rate situation in the market and to make the decision between fixed interest rate or variable financing easier. I will simply start here with a brief message about today's ECB meeting as well as the current levels of the Euribor rates. Currently, fixed interest rates in the market range between 3.5% and 4.5% fixed. Surcharges on a variable interest rate depend on the customer's creditworthiness and, of course, the quality of negotiation.

Today's ECB decision on 02.02.23:

Adjustment of the three key interest rates by 0.5%. New main refinancing rate (= key interest rate) 3%, marginal lending rate 3.25%, deposit facility 2.50%. At the same time, it was announced that interest rates will be raised further - including the main refinancing rate in March again by 0.5% --> key interest rate then 3.5%

3M Euribor on 01.02.23: 2.483
6M Euribor on 01.02.23: 3.009
12M Euribor on 01.02.23: 3.414

I will start here very simply with a short message about today's ECB meeting as well as the current levels of the Euribor rates.

Then please explain to the forum participants that the ECB rate has nothing to do with long-term refinancing for real estate financing. Today's decision does absolutely not change interest rates for real estate financing. To follow the market, one has to use the mid SWAP rates. This is the refinancing basis / calculation size.



On top of that, the bank adds its margin as well as liquidity costs. In the case of portals and brokers, 1-4% commission is also included in the terms.

Currently, the fixed interest rates on the market are between 3.5% and 4.5% fixed.

What can the interested reader make of that? Which fixed interest period? What loan-to-value ratio? Which region? What term = repayment? What customer creditworthiness?

Today's decision absolutely does not change anything about interest rates for real estate financing.

So you believe nothing changes and financing interest rates will not rise further despite the ECB's interest rate hike of 0.5 percent today. I don't believe that. In the area of durable goods, we are already at nearly 6 percent, tending towards 7 percent.

By the end of the year, we are talking about 8 - 10 percent interest rates. In this respect, interest rates below 4 percent are still super cheap. In 2010, I was also relatively happy with over 3.25 percent. A possible follow-up financing would currently be possible under the same conditions.

Today's decision absolutely does not change interest rates for real estate financing.

So you are of the opinion that nothing will change and financing interest rates will not rise further despite the ECB's interest rate hike of 0.5 percent today. I don't believe that. In the area of durable capital goods, we are already at just under 6 percent, trending towards 7 percent.

By the end of the year, we will be talking about 8 - 10 percent interest. In that respect, interest rates below 4 percent are still super cheap. In 2010, I was relatively happy with over 3.25 percent. Any potential follow-up financing would currently be possible on the same terms.

The interest rate will be 2% on 15 years at the latest by mid-2024, any bet. 8-10%

So you are of the opinion that nothing changes and financing interest rates will not rise further despite the ECB raising rates by 0.5 percent today.
I don’t believe that.

Believing is not knowing. Therefore, I don’t believe either, but work in the industry and therefore know whether and what connections exist between different factors.
A good example is the ECB hikes last year. Despite the increases, long-term interest rates have fallen significantly at the same time.
Besides, the current and upcoming hikes are already priced into the market.

Personally, I expect a moderate increase in the long-term interest rate, with all fluctuations up and down.

For your explanation: Banks refinance themselves short-term with the ECB rate (or also deposit money there). Long-term loans are not refinanced this way. For that, there are so-called capital market instruments. Very well known is the Pfandbrief – bought by, for example, institutional investors. Or banks undertake maturity transformation = lending out short-term available liquidity (customer deposits) as long-term loans. Very dangerous in times of rapidly rising interest rates. That is why many banks are currently experiencing major problems, because the 1% financings from 2021 now have to be financed by deposits that actually have to bear interest – if the bank pays 1% interest today, it makes a significant loss.

There is another thread here where the interest rate situation was somewhat discussed: I think it is led by a provider of construction financing, but ultimately we mostly discussed independently of that.

Otherwise, you could simply look at the mortgage interest rates from last year (for example, there is an interest rate chart from Interhyp or something like that) and you can see a clear up and down regardless of the ECB key interest rate. E.g. construction interest rates had already risen sharply from January to July (~1%->3.4%), but the first ECB increase was only at the end of July. The rest of the year then went up and down quite a lot (partly dropping almost another percentage point again, then rising one and a half again, and then down and up again... overall very volatile...) although there were only increases in the key interest rate. Therefore, no, there are usually no direct effects...

Roughly (considering the longer term), they do of course have a similar direction. For example, I once found this older graphic:



But if you look more closely, mortgage interest rates usually start rising or falling before the key interest rate does. Otherwise, they are also generally more volatile...