Low since last year

Home loans are finally cheaper again

The dream of home ownership is becoming somewhat easier to achieve and monthly installments are falling.

(Bild: 2021 Elizaveta Galitckaia/Shutterstock)

Residential real estate loans are finally noticeably cheaper than at the beginning of the year, and they could fall further: variable-rate loans are back below 5 percent effective interest for the first time since summer 2023, according to credit advisor Infina. Fixed-rate loans are even cheaper at 4.13 percent.

The latest Infina Credit Index shows the savings for house builders and property buyers on new terms for 20-year fixed-rate and variable-rate home loans. The conditions of 12 banks are compared. According to Infina, in July 2023, the average rate for variable interest rates was 4.762 percent, while the effective rate including fees was 5.37 percent.

A 20-year fixed-rate loan cost 4.05 percent (effectively 4.58 percent). Currently, you only have to calculate 4.97 percent for variable-rate financing, and only 4.13 percent for a fixed-rate offer. Converted, this means that the monthly installment (for financing of 100,000 euros over 25 years) now amounts to a market average of 523.15 euros with a fixed interest rate and 568.27 euros with a variable interest rate.

In view of the expectation that the ECB and Fed will reach their sustainable inflation target of 2% by 2026, both central banks have initiated interest rate cuts, which are likely to continue. Infina CEO Christoph Kirchmair expects that interest rates for variable-rate residential construction loans, based on the 3-month Euribor, could therefore fall to between 3.50 and 3.75 percent by June 2026 if the ECB's inflation target of 2 percent is achieved on a sustainable basis. "The affordability of residential real estate is improving."

(Bild: Krone KREATIV)

This can also be seen in demand: after the sharp slump in house builder loans, a noticeable increase in financing has been concluded again in recent months, says the National Bank. The figure is once again over 1 billion euros per month, 30 percent more than at the beginning of the year. If you want to sleep soundly, you should opt for fixed interest rates, advises expert Kirchmair: "Borrowers are currently continuing to benefit from attractive offers with fixed interest rates over 25 years and beyond. This long-term security is extremely valuable."

Infina boss Christoph Kirchmaier: "Affordability is improving."

(Bild: Infina / OTS)

It should be worth taking out a loan now, as interest rates for long-term fixed-rate loans are expected to rise slightly in the longer term, as they are usually higher than those for variable-rate loans. For borrowers, this means that they will not have to pay a higher interest rate for a 30-year hedge against rising interest rates than for a three- or five-year hedge, for example. Currently, hedging with long-term fixed interest rates is still particularly attractive for new loans, even if the interest rate advantage of long-term fixed interest rates has already diminished somewhat compared to the past.