Record-Smashing Number of Private Home Loans
Will interest rates rise or not? It is a question on the minds of many Germans, most notably of those contemplating homeownership. A lot of them have already gone ahead and made the decision. According to the German Association of Savings Banks and Girobanks (DSGV), a record number of housing loans were granted during the first six months of 2015 in response to the historically low interest rates. All in, lendings by 415 savings banks during the first semester added up to a total of 26.4 billion. This implies an increase by 35.2 percent or 6.8 billion euros year on year – and is the highest volume on record for any first semester.
Rising Number of Forward Deals
A minor interest rate hike in May demonstrated that even a modest increase in interest rate will encourage decision-makers to make a move. Market insiders report that it has precipitated yet another record. Many of the prospective property owners and even those owners whose fixed-interest period is about to expire are negotiating forward loans in anticipation of rising interest rates. The past months of June and July saw more private clients take out forward loans than any other time during the past ten years. By doing so, they secured today's borrowing terms for loans they intend to draw down in a few years' time. Compared to the grand total of loans negotiated, the number of forward loans rose from 11 percent during H1 2014, hitting 17 percent by mid-year 2015.
No Interest Rate Hike in Sight
That being said, anyone thinking about a forward loan should bear a few things in mind in order to safeguard themselves against rising interest rates. Experts do not anticipate major interest rate hikes in Europe any time soon. But even if the interest rates remain stable or drop even lower, the borrowed amount must be drawn down because a forward loan is a contract binding for either party. Moreover, the interest rate fixation of a forward loan is subject to a fee. The longer you wait before drawing down your loan, the higher the premium. If you wish to take advantage of the currently low level of interest, you should limit your forward loan to a moderate amount.