© Getty Images/iStockphoto / Chainarong Prasertthai/IStockphoto.com
The ECB has raised interest rates again. This puts variable rate borrowers in financial distress.
In Austria, an above-average number of homebuyers and house builders rely on variable-interest home construction loans – despite the prolonged period of low interest rates. That was not a problem until the beginning of 2022, because the interest rate was 0.5 percent. Borrowers felt safe. A circumstance that is now taking bitter revenge with significantly higher interest rates. Because the European Central Bank (ECB) increased the key interest rate step by step between June 2022 and July 2023 (see chart) – most recently to 4.25 percent. It is expected that another rate hike will follow in the fall in the fight against high inflation.
“We are currently experiencing the fastest rise in central bank interest rates in post-war Austria,” emphasizes Andreas Eder, real estate expert at the comparison platform durchblicker. “From minus/zero to three percent in less than 12 months – that certainly caught many on the wrong foot,” says ÖRAG board member Michael Buchmeier. The result: In the meantime, the loan rates for private house and apartment buyers have increased noticeably, which puts many households under pressure. Whereas an average dual-income household had to spend around 40 percent of its monthly income to repay a loan for a 90-square-meter new apartment in Vienna for decades, it would now be almost 70 percent, as an analysis by the tariff comparison portal shows. More and more households that have bought their own home with a variable interest loan in recent years are now getting into a skid.
© Picture: Sebastian Freiler / see through
Because the monthly additional costs for variable financing concluded in 2021 are currently 200 euros. The expert looked at the purchase prices for a 90 square meter condominium in Vienna-Landstrasse and the associated loan financing rates from 1997 to the present, and compared them to the monthly net income of an average two-income household. The result: An average Viennese household would now theoretically have to spend 69 percent of its monthly net monthly income in order to be able to afford such a new apartment on credit.
An analysis by the Chamber of Labor at nine Viennese banks shows how high the interest burden on new mortgage loans is at the moment: the variable interest rates are between 4.125 and 5.005 percent with sufficient creditworthiness, the fixed interest rates for 20 years between 3.65 and 4.255 percent. “Fixed interest rates for new home loans are even lower than variable ones,” says Gabriele Zgubic, Head of AK Consumer Policy. There are also fees such as the processing fee, the account management fee, lien fees or the appraisal fee for the property.
© Image: Getty Images/iStockphoto / Kemter/iStockphoto
But what do borrowers do who can no longer afford the loan installments of their variable loan due to the rise in interest rates? The first step should be a conversation with the house bank. Together you can explore whether switching to a fixed-interest agreement or extending the term is the better option. If the term is extended, the monthly rate decreases, which means that you have to pay off longer. “If you know that you can no longer afford to continue increasing interest rates, it still makes sense to switch to a fixed-interest loan, even if it is uncertain how interest rates will develop,” says Andreas Ederer.
The fact that borrowers have repeatedly resorted to variable financing, even in new business, gives rise to fears in the Oesterreichische Nationalbank that these loans could become the problem cases of tomorrow. For this reason, OeNB Deputy Governor Gottfried Haber warned against “expectations of error” and appealed to those interested to normally choose loans with a fixed interest rate. Because these guarantee that the monthly installments remain the same over the term. “In times of inflation, one should not be surprised by rising interest rates,” says Haber. The demand for new loans has meanwhile collapsed because the high interest rates are making buying a home immensely more expensive.
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2023-08-13 03:16:18
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