Despite falling interest rates

Property unaffordable for most Austrians

For couples in Austria, the affordability of a home has only improved slightly despite falling interest rates and salaries that have been adjusted for inflation. It doesn't help that they both work.

(Bild: stock.adobe.com/Diego Cervo)

The rise in real estate prices makes buying a home unaffordable for most people. A calculation by the comparison portal Durchblicker found that interest rates would have to fall by three percent for debt to be considered affordable and meet financial market requirements.

The desire to own a home remains a dream for most Austrians. Despite falling variable interest rates, inflation-adjusted salaries and the government's housing package, affordability has not really improved in this country. This is the result of an analysis by the comparison portal Durchblicker. An average double-income household would still have to spend 59% of their income on a 90 m² new-build apartment in Vienna to pay off the loan. By comparison, the average for 2023 was 64%.

"Affordability has only improved slightly compared to 2023. This means that the housing package has so far failed to have the desired effect on many levels. The scattergun approach puts lower-income households at a disadvantage, and only those who can afford it anyway are relieved. In our view, a cooperative model with a mandatory purchase option, for example, would be much more effective in creating more ownership in the housing sector. It is also important to remove barriers for younger people, for example in the area of equity," says Martin Spona, head of Durchblicker. 

The government's housing package has so far failed to make an impact on many levels.

Martin Spona, Chef des Vergleichsportals Durchblicker

In order for couples to get the green light for a home loan, a maximum of 40 percent of their monthly net income may go towards loan repayments. Most interested parties are still a long way from the required maximum debt repayment ratio. Even higher earners do not yet receive a loan - they would currently have to use an average of 45% of their monthly salary to repay the loan. In addition, the calculation assumes that buyers have between 200,000 and 250,000 euros in their own funds, which is often not the case. The impact of the housing package on the debt service ratio is marginal. In concrete terms, they only have an impact of around 1 percentage point.

Expected interest rate cuts only have a marginal impact
Analysts expect the European Central Bank to cut interest rates by around 0.5% in the near future. According to Durchblicker's model calculation, this will only marginally ease the burden on real estate affordability: instead of 59%, "only" 55% of net household income would then be due. "In order to reach the debt repayment ratio of 40 percent, an interest rate cut of around three percent would be required - and this is not to be expected from today's perspective or interest rate hikes are already conceivable next year," says Andreas Ederer, Head of Banking at Durchblicker.

Martin Spona, Head of Durchblicker: "Affordability has only improved slightly.

(Bild: www.sebastianfreiler.com, Krone KREATIV)

Recently concluded variable-rate loans are still heavily affected. If you had bought the same apartment in 2021, you would have paid back 1740 euros in the first month for a variable-rate loan. The repayment installment is now 2745 euros, which is almost 60 percent more than when the loan was taken out.

Rescheduling to a fixed-rate loan pays off more than ever
Variable interest rates have been falling since the beginning of the year. The reason: the markets have already priced in the interest rate cuts expected from the European Central Bank in the near future. The Euribor is currently around 6.3 percent below the level at the end of 2023. Fixed-rate offers have been cheaper than variable-rate loans for a year now. For example, a 15-year fixed-rate loan currently costs up to 1.575 percentage points less than the variable-rate loan alternative. Ederer: "All those with variable-rate loans who are currently having difficulties repaying their loan should definitely consider rescheduling. This completely eliminates the risk of interest rate changes for a defined period of time and creates financial security."

Risk in financing, security in saving
According to OeNB figures, at the beginning of last year, around 45% of outstanding loans throughout Austria were subject to variable interest rates. Although the trend is on the decline, Spona still identifies an uneven distribution of risk in investments: "Traditionally, Austrians take a significantly higher risk when it comes to financing than when it comes to saving. Low-yield building society savings are still in the lead. "While you get a lower return at most with riskier investments, the interest rate changes with variable loans can sometimes threaten your existence. There is a lack of independent advice and financial education here," says Spona.