Completely unexpectedly, interest rates are falling again. In 2018, it was clear to bankers and construction finance experts that bond rates would rise again this year. In fact, the assumption at the time was just under one percent. The interest rate trend in 2019 is basically pointing in the other direction. What this means for construction financing? Since the development of interest rates on construction loans is dependent on the development of federal bonds, construction loans will continue to be exceedingly cheap in 2019.
Interest rate development 2019: the bond market sets the direction
The yield on federal bonds is THE indicator for the development of mortgage rates. In February 2018, the interest rate was 0.7 percent. In recent months, however, it has moved back toward the zero line. Currently it stands at 0.1 percent. There was already a similar development 3 years ago. At that time, the yield on German government bonds fell to minus 0.2 percent. So at that time, investors got back less money than they had lent to the government. The interest rate trend in 2019 indicates that yields around zero percent can also be expected this year.
Interest rate development 2019: Inflation is falling again
The inflation rate, which rose in the middle of last year, is also falling again. At the end of 2018, it was expected to reach the 2 percent mark – the ECB's desired level – but today it is once again heading in the direction of 1.5 percent. And there are reasons for this: Economic output in Germany is declining. Business expectations of companies are declining. The International Monetary Fund, the German government and a number of economic research institutes are dampening forecasts. While no one expects a true recession, the projected growth of ca. 1 percent this year is measly.
As a result of this development, the European Central Bank is also expected to lower its economic outlook and adopt measures to mitigate the risk of recession. The postponement of the announced key interest rate increase could be one such measure. As a result, banks will continue to receive very favorable loans.
Interest rate development in 2019: very good for real estate buyers
Savers will not be satisfied in 2019. Interest rates on time deposit accounts will continue to hover near the zero line. Equities will also face a difficult year. Shareholders may suffer from the worsened economic outlook, which typically also lowers the earnings of publicly traded companies and thus their payouts. And bonds will only just compensate for inflation for particularly long maturities and for companies with moderate credit ratings. The bottom line is that savers and investors risk losing wealth due to higher inflation by comparison.
Among the only beneficiaries of the development forecast for 2019 are borrowers. Installment loans are offered around 4 percent. Real estate loans remain particularly favorable at just over one percent with a 10-year term and good debtor credit rating. These favorable credit costs as well as rising incomes make thus in the long run the increase in price of the real estate market to a large extent balanced out. This means that many can still afford to buy a property financed by a loan. The safest way is to secure the currently extremely favorable interest rate for as long as possible, so as not to run into the debt trap when interest rates rise in the future. Take advantage of this interest rate trend now in 2019 – real estate loans can practically no longer become more favorable.
The interest rate development in 2019 is surprising: contrary to all forecasts, the interest rate for building loans has fallen to a historically low level.