Rising interest rates, bafin requirements, climate protection: buying a house is becoming significantly riskier

Thousands of private households, but also property developers, must now fear for their construction or renovation projects. Although the traffic light coalition of SPD*, FDP* and the Greens* is now looking for a solution, a new program is to create a replacement for the funding. But the exact form is still uncertain. But this is not the only problem for homebuyers. The Handelsblatt names a total of six risks that need to be weighed up.

Buying real estate: rising prices

One consequence of this is that the ratio of rent to purchase price is drifting further and further apart. This can be determined by the so-called multiplier: How many average annual rents must be paid to be able to purchase an apartment? In Munich, this value is 47, which means that a real estate buyer in the state capital must wait 47 years until the investment is compensated by the rental income – without taking into account maintenance costs and taxes. In other major cities, this figure is still at 35.

Real estate acquisition: Unclear subsidy situation

In addition to the rising purchase prices, it is becoming more and more difficult to calculate the costs. One reason is the unclear energy subsidies, which amount to a huge sum of money. According to K, in the period since November 2021 alone, the promotional bank has received applications for more than EUR 20 billion in subsidies. What will become of the applications that have not yet been approved is currently unclear. Consideration is now being given to whether the development bank could provide low-interest loans instead of repayment or investment subsidies.

Large construction site for new apartments in the Gartenstadt Waldtrudering district of Munich

The subsidy freeze makes buying real estate more expensive. The Chief Executive of the Association of German Banks (BdB), Christian Ossig said: "I can’t give you a precise forecast of how real estate financing will become more expensive for private customers. But it will become more expensive, and that will be noticeable."

Real estate purchase: Rising construction interest rates make loans more expensive

At the same time, real estate buyers are facing higher borrowing costs; the days of historically low construction interest rates are over. In view of interest rate policy, inflation and economic development, mortgage lender Interhyp considers an interest rate increase of several tenths of a percentage point for real estate loans likely in the course of 2022.

There was a foretaste in January, when interest rates for ten-year loans rose from one percent to around 1.15 percent. With financing of around 500.000 euros, this can add up to a five-digit sum over ten years.

Real estate purchase: Bafin prescribes larger security buffer for banks

Real estate loans are also likely to become more expensive because Bafin has stipulated that banks must deposit more money as collateral for their loans as of February 2023. According to Interhyp, however, the extent to which interest rates will rise as a result remains to be seen.

In addition, it could become more difficult to get a loan at all. Because the supervisors advise banks, insurance companies and other lenders to be "particularly cautious" in granting new loans in view of the current developments in the real estate market. This means that equity requirements are also likely to rise. Interested parties without sufficient funds of their own could be turned away by the banks.

Real estate: climate protection measures bring new burdens

The EU Commission wants Europe to become climate-neutral by 2050. The real estate sector, which accounts for around 40 percent of energy consumption, is to be a key sector in this context. If Brussels has its way, real estate owners should renovate their houses for the new climate target.

This means that owners will also have to prepare for high costs in the coming years. The distribution of the burden between tenants, landlords and the state is still unclear. It could be that owners will also be financially overburdened.

Real estate: Rising raw material prices increase construction costs

The significant increase in the price of important building materials, in addition to the ongoing shortage of skilled workers, is driving up construction costs. On average, prices for construction timber in 2021 were 61.4 percent higher than in the previous year, while for reinforcing steel they were 53.2 percent higher. "These strong increases in the price of building materials led to the price increase in the past year for the construction of new residential buildings (annual average 2021) of 9.1 percent," explained Tim-Oliver Muller, Chief Executive of the German Construction Industry Association, the situation.

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