Homeownership as an investment defies the corona crisis. In October 2020, property buyers and builders took out loans averaging EUR 296,000. This is a new record, shows the current edition of the “trend indicator for mortgage lending” by the financial services provider Dr. Small. For comparison: in the previous month it was around 4,000 euros less. In October 2019, the average loan amount was 262,000 euros.
According to the Dr Klein experts, there are several factors that influence this development. These included, among other things, a lack of investment alternatives during the ongoing phase of low interest rates, rent-free living in old age and greater freedom of design in property. In addition, the extremely low building interest rates are a decisive factor for many people to invest in real estate right now.
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“With a very good credit rating and high equity investment, some banks grant building loans with a ten-year fixed interest rate starting at 0.39 percent,” they continue to write as part of their analysis. And also the standard rate that Dr. Klein has determined for the long-term comparability of a loan of 150,000 euros with 2 percent repayment, 80 percent loan-to-value ratio and ten years of fixed interest rates, this reflects. Because: At 376 euros, it fell to an all-time low in October.
In addition, nowadays neither a certain equity nor the rule of thumb “additional costs plus 20 percent” is necessary for the desire to own a home. According to Dr Klein, a good credit rating and a “solid financing plan” are sufficient so that property buyers or builders can finance up to 100 percent of the purchase price – this is especially true for owner-occupiers. Klein’s experts found the following for the so-called loan-to-value ratio – the debt-financed portion of the loan-to-value, which is often below the purchase price: In October it rose from 84.68 to 84.93 percent – the second-highest value after July 2020 within the past few years.
Higher repayment rates than ten years ago
The initial one Repayment In October, at 2.78 percent, it was also slightly below the previous month’s value (2.8 percent), but still significantly higher than ten years ago (1.86 percent). “The current low interest rates make the high initial repayment possible, but also necessary – because with a very low repayment it can take a long time until the loan is fully repaid,” comment the analysts on the current figures.
A long one Fixed interest rate On the one hand, it means a higher interest rate. But: “It gives the borrower a longer-term plan before the follow-up financing is concluded at the then current conditions,” the experts continue. The bottom line is that the trend is towards longer fixed interest rates. Until the middle of 2014 it was almost continuously under twelve years, so real estate buyers secured the interest in October 2020 for around 13 years and 7 months – as long as in September. And yet: According to Dr. Small, the borrowers remain flexible: “After ten years they can make use of a special right of termination and reschedule the loan before the end of the originally agreed period.”
The conclusion of the analysts:
“The weighting of the loan types reflects the currently very quiet interest rate market” – and since no major movements are to be expected here in the medium term, the trend of the last few months continues. So-called forward loans are an interesting solution for individual follow-up financiers, but currently do not play a major role across the board. According to Dr. Klein’s share fell to a low of under 5 percent (4.93 percent) in October. For comparison: four years ago it was just under 13 percent. According to the analysis, annuity loans, on the other hand, recently achieved a share of 83.25 percent. For comparison: in 2016 it was 75 percent.
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