Financing - first bank has declined

Recently, in the Tagesschau article about mortgage interest rates, it was said that these covered bonds underlying the mortgage interest rates are also influenced by the ECB's key interest rate. I didn’t fully understand how that works, but at least they linked it to that.

Recently in the Tagesschau article about construction interest rates, it was said that these covered bonds underlying the construction interest rates are also influenced by the ECB key interest rate. I didn’t fully understand how that works, but at least they linked them together.

Of course, there are macroeconomic interrelations. But quite specifically, an ECB key interest rate increase has absolutely nothing to do with the interest rates of real estate financing.

If you are interested in more detail, you can get very good explanations on the topic complex on the page of Dr. Klein. It’s really reader-friendly and not full of technical jargon. Explaining everything here would go beyond the scope. The result, however, is what I have written here.

I work professionally with financing at a Pfandbriefbank.

I wanted to keep you updated. The 2 "new" banks we contacted also think that the lending value is too high. However, we were given 2 counteroffers, one of which is relatively good. The interest rate receives a risk surcharge of 0.5%. I then informed my advisor that we would go ahead with it! The first bank simply did not want to!

"But quite specifically, an ECB key interest rate hike has absolutely nothing to do with the interest rates on mortgage financing."

What kind of nonsense are you trying to tell us here? Then I really wonder why mortgage financing is no longer offered at 1.xx percent. Logically, the interest rates for mortgage financing rise in real and proportional terms with the key interest rates. Rising interest rates increase the yields of bonds, whose value then decreases. And rising interest rates have an inflation-dampening effect. If significantly fewer people can afford financing, prices will at least no longer rise, but rather fall.

A turnkey townhouse villa, four vacations a year, a fancy and, of course, financed car in front of the door, as well as several other "nice to have" frills are already very unusual for an average earner. But of course, this sense of entitlement has become very, very widespread in recent years. I fear that is now over for the time being and will not return anytime soon. It was simply sick.

Dear Karsten from NRW, no offense but maybe you should just change your profession and do something decent.

"But quite specifically, an ECB key interest rate hike has absolutely nothing to do with the interest rates of real estate financing."

What kind of nonsense do you want to tell us here?

Well, context. The post was a reply to someone who more or less said "I absolutely have to close before the next key interest rate hike," and that is rather pointless, since the day it happens doesn't really have a direct impact. Last year, construction loan interest rates already rose from 1% to over 3% from January to July. At that time, the key interest rate was still at 0.0%... when it was then raised by 0.5% at the end of July, construction loan interest rates initially even fell again... overall, you are of course right that the trends are not independent of each other, and also the mere expectation "there could be further key interest rate increases" means that I would not expect real estate financing interest rates to drop sharply anytime soon. In that respect, "absolutely nothing" was certainly wrong. The assumption "the ECB raises the rate by 0.5% on that day, so the real estate interest rates will necessarily be 0.5% higher from that day" is simply not correct either. You can just look at the last hikes. Sometimes there was a minor trend reversal afterward, sometimes not, and the direction was not clear either. Over the whole year, however, you are of course right that both the key interest rate and real estate interest rates rose sharply and that of course has related causes.

(...)
Percentages are offered. Logically, the interest rates for real estate financing rise real and proportional with the key interest rates.
(...)

And that is exactly wrong, because this proportional relationship does not exist.
Proportional would be "key interest rate 3%, real estate interest rate 4%. Key interest rate 3.5%, real estate interest rate 4.5%."

That is not the case, even if that does not fit into your rather simple worldview.