Will construction interest rates soon reach the unimaginable?

Hello everyone,

I have been wondering if we should expect even more dramatic increases in construction loan interest rates in the near future. Last week saw the strongest weekly rise since the financial crisis of 2008. That surprised me quite a bit and, to be honest, also made me a little uneasy. Many people have taken advantage of the low interest rates to invest in real estate, and now this could become a financial burden for some. What do you think, are these developments just short-term fluctuations, or should we prepare for higher interest rates in the long term? How are you personally dealing with the current situation, especially if you are currently interested in construction projects or property purchases?

First of all, you have to realize that interest rates are still historically low. We don’t have high interest rates – those existed when I started in this field 30 years ago. Everything is quite relaxed – but young people simply don’t (anymore) know that money also has a price. Then they are “shocked” when the interest rate explodes from 0% (or even negative) to 3.5%.

Now to your question. The interest rate development results from the debt package of the old/new government. A lot of money will be needed in the future. That has to come from banks or institutional investors. Therefore, both the price (interest) and the liquidity costs have increased in the longer interest rate band. So it is a market expectation for the future.
A large part of the future expectation is already priced in. The ECB’s interest rate cut (as well as the further expected cuts this year) have no direct impact on the long-term financing interest rates for real estate. So do not expect decreases in financing interest rates.

I had our monthly capital market update at the company this week (comes from one of the largest banks in [D]). By the end of the year, only small interest rate increases are expected. So rather sideways with a possible slight increase.

In this respect, you can stay relaxed. Interest rates remain low, but feel really high, especially for younger people.

First of all, you have to realize that interest rates are still historically low. We do not have high interest rates - those existed when I started in this field 30 years ago. Everything is quite relaxed - but young people just don’t (anymore) know that money also has a cost. Then they are "shocked" when the interest rate explodes from 0% (or even negative) to 3.5%.

I understand that and sometimes hear it myself, but as already says, you should take a closer look at it to avoid falling into unnecessary and unhelpful frustration. For our first house in 1990, we were at about 9% as far as I remember. When years later I could refinance a larger portion at 3.7%, I was just happy.

I believe I financed my first house at 6.4% - I earned less than 1800 DM back then.


Source: Internet

Buy what you can afford now.

For me, it was 7.25% with the first property and only 1% repayment.

The profit was almost solely generated through value appreciation.

In my opinion, success lies in taking action now and not complaining like some of my younger colleagues, especially on the company outing this evening.

Currently, I have to achieve a minimum of 14 euros per m2 for my current project, which means separating the wheat from the chaff; the air is significantly thinner here in the area.

But with a little patience, it works as well.

The old rules still apply to me: craftsmanship has a golden foundation and concrete gold.