Germany keeps raising mortgage rates
Central banks continue to fight the record rise in inflation, and the most common way to do this is to raise interest rates. However, such a decision seriously affects the welfare of the population. The increase is particularly acute for Europeans who are used to stable economic growth and are now faced with significant price increases in various market sectors. For example, in Germany, average mortgage rates have reached a level of 3.03% per annum, one of the highest among the countries of the European Union. Compared to 2021, this figure has grown by more than 2 times.
During the last year, the Central Bank has raised interest rates several times, and now their size is the biggest since the economic crisis of 2009. At the same time, the regulator has already said it will continue to try to curb rising inflation through rate increases. The European Commission will decide on a new hike at its next meeting, which will be held soon.
Rising interest rates had a negative impact on demand for mortgage lending. In the previous quarter, the figure fell 42%, the largest decline since 2012. People are giving up on buying real estate due to high mortgage rates. Many believe that such a measure is temporary and want to wait for an improvement in the situation, while others have reduced purchasing power due to inflation and they doubt that they will be able to pay the loan.
As for the residential real estate market in Germany, analysts predict a decline in prices this year. According to the expectations of experts, the cost of facilities will fall by about 3.5%. Prior to this, it was assumed that the rates, on the contrary, will grow by 0.5%. The causes of the downturn are already known as rising inflation and interest rates, under the pressure of which demand for real estate decreases. However, according to analysts, it is too early to talk about the crisis in the market, rather, such a slowdown is temporary, and there is every chance that the segment will quickly recover.
The inflation rate in the consumer price sector in Germany last month was about 12%. Experts predict that the European economy will soon enter a recession, and when interest rates rise, households will be the first to be affected. It is still difficult to say when the situation will start to improve, but at the moment there is no noticeable slowdown in inflation, which means that the revision of interest rates and their pressure on the purchasing power of the population will continue.
According to analysts, a fall in real estate market prices will be observed in 2024, by about 0.5%, but in 2025 they will grow by 1%. In general, we should expect a correction in real estate values, but not the collapse of the segment, as there are no significant signs of it.