Building Finance Rates Have Never been Lower
As recently as last year, it was generally assumed that interest on mortgage loans had long bottomed out and would inevitably rise in the short-, medium- or long-term. Now, at the start of summer 2019, an entirely different situation presents itself. Not only did the building finance rates fail to go up, they actually dropped to an all-time low in late May. According to a statement by mortgage broker Interhyp, the average interest rate for ten-year loans is down to 1.06 percent. The lowest level so far had been 1.11 percent, and it was registered in the fall of 2016.1
No Interest Rate Reversal in Sight
One of the reasons for this latest decline in building finance rates is that the European Central Bank refrained from reversing its interest rate policy. It had originally been predicted that the ECB would raise the key lending rate, currently at zero percent, by mid-year 2019. But the predicted date for doing so kept being pushed back – initially to year-end 2019, then to mid-2020, and lately many observers have suggested it won’t happen until 2021.
Another factor that comes into play is that the growing global economy jitters—for instance, over the trade row between the United States and China—have caused yields on German government bonds to nosedive, which in turn has ramifications for mortgage interest rates. This could admittedly reverse itself in the medium term, and the average building finance rates on ten-year loans could bound back with a modest increase. But that they would rise beyond the bracket between one and two percent in which they have moved since 2014 now2 seems rather unlikely.
Buying More Affordable than Renting almost Everywhere
Accordingly, this is still a great time for buying a home. Published in early May, the ACCENTRO-IW Housing Cost Report 2019 suggests as much while also pointing out that going for homeownership is more affordable than renting your home in almost every region of Germany.3 In terms of national average, owner-occupiers pay 40 percent less for housing than tenants.
Yet the homeownership rate in Germany continues to flatline, and the number of first-time buyers has actually declined. Although the governing Grand Coalition introduced the controversial child tax credit for first-time home buyers, landlord-tenant issues like the so-called rent cap and the tightening of the so-called rent freeze have dominated policy debates since. It is not least this prioritisation by the body politic which ensures that Germany’s homeownership rate stays at 45 percent, the lowest in the European Union.4