Mortgage rates in Germany exceed 4% — The Local Germany

In Germany, interest rates on mortgage loans fixed for 10 years have exceeded 4%, increasing housing buyers’ costs and complicating refinancing for some property owners. According to The Local Germany, financial intermediary Interhyp estimates the current rate for such loans at nearly 4.2% per year.

Another German mortgage lender, Dr Klein, reported an average annual rate of 4.1%. A year earlier, the corresponding figure was 3.4%, meaning it increased by approximately 0.7 percentage points over 12 months.

More expensive loans for buyers

Interhyp representative Thomas Kreil noted that prospective buyers are calculating their options more carefully, assessing their choice of property and the size of monthly payments over the long term. Dirk Eilinghoff, an expert at the financial advice service Finanztip, said that for a €300,000 loan, the new rates could increase the monthly payment by €250.

A key factor shaping mortgage rates is the level of long-term interest rates on the capital market. In mid-September, yields on 10-year German government bonds temporarily reached their highest level in more than 17 years. This raises refinancing costs for banks, which is reflected in mortgage terms.

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Demand for housing loans is declining

According to the Bundesbank, demand for housing loans fell in the second quarter of this year by the most in three years. Banks also tightened lending criteria: the net share of institutions that introduced stricter requirements rose to 7%, compared with 4% in the previous quarter.

Banks attributed the stricter requirements to higher credit risks, more expensive refinancing and lower willingness to take risks. Energy efficiency of housing is also becoming more important for financing: banks generally provide less funding for properties with low energy efficiency than for modernized real estate.

Homeowners whose fixed-rate period is ending may also face more expensive refinancing. At the same time, their outstanding debt after several years of payments is often lower, so the increase in monthly payments may not be as significant as a simple comparison of rates would suggest.