With a 10-year debut of approx. 1,7% (we were already over in May 2,0%!) we have the level of 2014 reached – and how are real estate prices behaving? These are currently still at the level of the beginning of the year. No wonder, The interest rate explosion took place in just one time 6 to 8 weeks.
How do you behave market participants?
Institutional real estate investors who traditionally used positive leverage, just like always, become full-equity investors in deals that are close to completion, to the extent that liquidity or funding commitments permit.
Project developers secure steel, although projects are not yet planned to the end. Many are waiting or postponing projects indefinitely due to uncertainties. Due to the strong price development for building materials or price guarantees of just once 8 weeks, if they still exist, there is almost no basis for calculation. Sensible risk limitation in real estate project developments can only go hand in hand with calculable positions.
Why have interest rates risen and is this sustainable??
First and foremost, you have to weigh up, whether the rapid rises in interest rates over the past few weeks are sustainable. Interest rates have already risen in the past year. The main reason for this was rising inflation and the associated general rise in interest rates on the capital markets. The war in Ukraine has caused already rising global inflation to explode, what the most important central banks in the world (especially the Federal Reserve) prompted them to raise interest rates and tighten their expansive monetary policy.
In addition, the war in Ukraine illustrates Germany's great dependence on fossil fuels and brings Germany's weaknesses to light. this leads to, that German government bonds are viewed as less safe and yields are therefore rising. The high correlation to federal bonds leads to a further increase in mortgage interest rates.
We assume so at this point in time, that it short- a peaceful solution to the Ukraine conflict will not be reached in the medium term and inflation will remain at a high level. This is forcing the ECB to act, and according to recent statements by ECB boss Christine Lagarde, an increase in key interest rates in the summer of this year is very likely.
An end to the rise in interest rates is probably a long way off!
What options for action exist?
Different strategies can be pursued depending on the risk affinity and the financing reason and term. This can range from variable rates to caps or (Part-)be interest rate fixing.
Obtaining liquidity by increasing the value of existing properties can be sensible variants, as can repayment models.
We are happy to help – or make a financing request directly:
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