Property Purchasers Take Advantage of Low Interest Rates Using It for Higher Dept Repayments
Purchasers of condominiums are spending more money for their own four walls. This is the result of a survey conducted by the Association of German Pfandbrief Banks (vdp). As shown by the analysis, the rise in expenditures, however, is not due to a higher level of risk-taking but to the dynamic development of prices on the market for condominiums. Since 2009, prices have increased by more than 5.5%. According to the vdp, these high expenditures are balanced out by favourable financing options.
Dept Burden for Mortgage Loans Remains Constant Despite Increasing Prices
Currently, homebuyers are spending 5.5 times the amount of their annual net income to purchase a condominium, in 2012 it was only 4.5 times more. However, the monthly dept burden of 21% for owner-occupied condominiums has remained almost unchanged since then. Furthermore, for leased properties used as a capital investment, the rate is only 13 %. Thus, the debt burden has not increased despite of higher prices. In the financing of condominiums, the loan capital ratio has decreased to overall 76 %, 4 % less than in 2012. Thus, the downward trend which has been observed since 2009 continues.
The same applies to single family homes as well. The dept burden of 23 % remained unchanged and this despite the fact that external dept has increased from 74 % to 77 %.
Trend Towards Safety and Interest Rate Fixation
Although having favourable financing opportunities, the survey of the vdp showed that homebuyers do not commit themselves to an increased risk disposition. Indeed, there is a sharp contrast. Thus, the initial repayment rate has risen to 3.1 %. This leads to the conclusion that low interest rates are not being used to extend the utilisation of loan capital for an indefinite period of time. Overall, the decreased interest charge for condominiums is due to the drop in mortgage rates and to the fact that homebuyers are tending to a security-oriented strategy. Purchasers are taking advantage of the favourable terms and choose long fixed-interest periods. Almost half of the loans have a fixed- interest rate of more than 10 years, on average 13-year fixed-rates.