Friday 11th December 2020
Investment and (construction) loans
What savers and builders need to know
A guest contribution by Max Herbst
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What comes after the corona crisis? In terms of interest rates, the new year could bring some changes. Above all, anyone who needs mortgage lending should keep a close eye on developments.
There is hope. Even if politics is currently discussing tightening rather than easing and the winter could be long and lonely: Preparations for the planned mass vaccinations against Covid-19 are ongoing. A relaxation is foreseeable and – in the long term – possibly the end of the pandemic.
Max Herbst is the owner of FMH-Finanzberatung, which has been producing independent interest rate information since 1986.
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However, the fact is that the road to real normalcy will be long and economic life after Corona will look different for some time than before the crisis. This raises the question of what interest rate developments we can expect for the coming year.
For savers, everything stays the same
As far as the investment rates for fixed-term deposits and overnight money are concerned, the statement is relatively simple: Everything currently suggests that the European Central Bank (ECB) will stick to its loose monetary policy and keep interest rates low. Even if the inflation rate were to rise significantly, as many experts expected, that would change little in terms of interest rates. Currently lies the best interest for 12 months fixed deposit without intermediaries at 0.9 percent.
As a result, there is likely to be a similar amount of movement in the interest rate market in 2021 as in 2020. In fact, almost none: The interest rate movement in the end of the year was not even 0.1 percentage points, even for fixed-term deposits. In the case of overnight money it was only 0.03 percentage points.
Installment loans could get a little more expensive
With this statement, the question of the installment loan interest is almost answered. If investment and key ECB rates do not rise, there is no valid reason why consumer credit should become significantly more expensive. Slight increases in interest rates of 0.5 to 1.0 percentage points are quite conceivable. Firstly, it is to be expected that people will have higher loan needs after the crisis and that banks will seize the opportunity to increase their margin. Secondly, there is an argument in favor of a slight increase in interest rates on installment loans that the risk of default could increase somewhat in the coming months, for example because companies file for bankruptcy and consumers lose their jobs as a result.
The higher risk provisions for such cases cause higher costs for the banks and slightly higher interest rates for the customer. In the new year, however, we will probably exceed the interest rate movement of just 0.4 percentage points from 2020. Above all, the gap between the lowest and highest interest rates is likely to be higher.
Currently there are the best installment loan rate for 36 months at the nationwide PSD Bank Nuremberg. It is 2.93 percent and does not have a credit rating.
Construction money could get more expensive
As far as mortgage rates are concerned, it is a little more difficult to forecast developments. Should there actually be significantly higher inflation, this could definitely affect the cost of building money. And a certain increase in the rate of inflation is relatively likely after it fell from 1.7 percent in January 2020 to minus 0.3 percent in November 2020. A quick overview of interest rates You can find out more about building money interest, inflation, federal bonds or investment interest on the FMH page.
However, mortgage interest rates are influenced much more strongly by the development of the ten-year federal bond than by inflation – and thus by the question: will large investors continue to rely on security and entrust their money to the German state? In this case they have to accept negative interest rates of currently around 0.5 percent. Should the economy in Europe, or perhaps even worldwide, pick up speed again, it could be that the said investors also rely on higher-yielding government bonds again. This would reduce the investment volume in Bunds and thus lead to higher bond yields in Germany. As a result, German Pfandbriefe would become more expensive, and ultimately also building interest rates.
I think this scenario is very likely – regardless of any inflationary developments. Accordingly, it is to be expected that there will be stronger interest rate fluctuations for building money again in the course of the new year. In the first quarter, interest rates could fall a little again, but I expect a slight upward trend from around March. Price increases of between 0.5 and 0.75 percent compared to today cannot then be ruled out.
Max Herbst is the owner of FMH-Finanzberatungwho has been producing independent interest rate information since 1986.
Fixed-term deposits in comparison
Daily money in comparison
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