“Variable interest rates are a form of speculation. This can end well and badly.”
But what happens next when buying real estate in the new situation?
To make matters worse, stricter lending guidelines for real estate purchases (KIM regulation) came into force a year ago. They require at least 20 percent equity capital, and repayments must not exceed 40 percent of income. The duration was also limited. These values must be strictly adhered to, even if they have already been used as guidelines by many banks.
The result: Fewer and fewer people can now afford property, if only because one of the limit values is just missed. Anyone who manages to do so is faced with the problem that money is now more expensive and the rates are correspondingly higher. You can respond to this with a fixed-interest loan or stick with variable interest rates.
Interest rate cap on loans with variable interest rates
For loans with variable interest rates, you can agree on an interest rate cap at most banks, explains WU expert Stefan Pichler. It’s a little more expensive, but the product exists and, according to Pichler, there is certainly demand for it. Loans with a pure fixed interest rate are also generally a little more expensive, but “by no means so much that they are so unattractive that you don’t take out one.” Fixed-interest loans are currently “equally expensive, if not cheaper, than variable loans,” says the WU expert. In general, the current interest rate level is more like normalization. Banking experts do not see a phase of high interest rates. This assessment has been heard more often in financial circles recently. Some assume that the interest rate peak has already been reached and that things are likely to go down, even if everyone is expecting at least two interest rate hikes from the ECB in the near future.
Pichler is cautious about OeNB Governor Holzmann’s suggestion that housing loans should always be granted with a fixed interest rate for the first five to ten years of the term. A commitment to this would go “in the direction of over-regulation”. But there is a good idea behind the proposal, says Pichler. Difficulties in repaying loans would increase after three to four years after taking out the loan and a fixed interest rate at the start of a loan would reduce this risk somewhat.
In Austria, 42 percent of home loans currently have variable interest rates. 52 percent have a mixed interest rate, i.e. with a fixed and variable interest rate. Only six percent have a purely fixed interest rate, according to data from the Austrian National Bank.
Infina recommends fixed interest rates for home loans
In any case, the independent financial consulting company Infina recommends fixed interest rates. “Three meetings of the ECB Council are planned for 2023, in which a decision will be made about possible further key interest rate increases. After the recently held international central bankers’ symposium in Jackson Hole, additional interest rate increases are becoming apparent,” warns Christoph Kirchmair, founder and CEO of Infina. Although not all borrowers find the recent increase in loan rates problematic, the situation in Austria is striking compared to Germany. While the share of variable housing loans in Germany was between 9.7 percent and 11.8 percent from 2018 to 2022, in Austria it was between 37.6 percent and 43.5 percent.
“As a result, around 500,000 Austrian households have been confronted with noticeably higher costs over the last 18 months – an additional burden in times of significantly rising energy and food prices,” says Kirchmair. “Even in times of extremely favorable housing financing conditions, we intensively informed our customers about various interest rate models and the associated risks. In 2021 and 2022, 78 percent of customers opted for a fixed interest rate or chose a product with an interest rate cap..”
According to Kirchmair, some experts expect an average increase in property prices in Austria of a further 6.9 percent per year over the next ten years. A loan with a fixed interest rate potentially prevents even higher loan repayments.
Have variable interest home loans checked
In the current market situation, the personal credit model should definitely be put to the test. “Every borrower with a variable-interest home loan should seek qualified credit advice to find out what options are available on the market,” advises the expert.
Interest rates rose significantly less at the long end, as the markets are already pricing in falling interest rates over the course of next year. An economic downturn and falling inflation rates are fueling these expectations. This means you could get out better with fixed interest rates. But, as Karl Valentin said: “Predictions are difficult, especially when they concern the future.”
2023-09-08 22:05:27
#Housing #financing #flood #money
