Buying a house, inflation, rising interest rates: how do I finance a house purchase in these times?

The markets are beginning to change. The loss of purchasing power climbed to 7.9% in May 2022 and interest rates have risen enormously. While many households were still able to afford a property loan during the long period of low interest rates, the current high repayment rates are preventing many future homeowners from owning their own home. How can you still finance your dream home?

Looking at a loan term of ten years, the interest rates of most providers have tripled in some cases since the beginning of the year. The fixed borrowing rate is currently around 3.1 percent (as of July 2022). This also entails stricter bank requirements in order to obtain financing for the property. If you also have a negative SCHUFA entry, this further reduces your chances of being approved for financing. Property buyers should therefore be able to afford the high monthly costs for the credit or loan and, if possible, delete negative SCHUFA entries.

The influence of inflation and high interest rates on follow-up financing

The new contract also brings new property interest rates for owners. Anyone who took advantage of good conditions during the low-interest phase will now be faced with higher interest rates than a few years ago. Rescheduling in order to take advantage of better interest conditions therefore makes little sense.

However, early follow-up financing, i.e. a forward loan, has the advantage of taking the current interest rate with you before it rises further. The catch here is that this type of follow-up financing is more expensive than a normal building loan. The reason: fees incurred for early termination of the contract. Banks generally charge a prepayment penalty. Borrowers may be able to avoid this under certain circumstances.

It is important not to accept the first offer from your bank when financing your home, but to make a loan comparison.

Increase creditworthiness

If a better income is not in sight, no or hardly any equity is available and your own expenses cannot be reduced any further, there are still ways to improve your own creditworthiness:

• Pay invoices by the due date
• Reschedule other existing loans
• Do not live above your financial limit (budget planning can help)
• Cancel unnecessary and unused bank cards and accounts
• Multiple borrowers or lenders
• Increase SCHUFA score: delete negative entries (tip: request SCHUFA information once a year and ask which entries can be deleted)

If the high interest rates jeopardize further follow-up financing, after which the house can no longer be paid off, there is support for owners from regional real estate professionals. Together, they can discuss individual solutions for the worst-case scenario before foreclosure occurs.

Would you like to finance a property or know what options you have with your property in the event of rejected loan approvals? Then contact us. We will be happy to advise you.

Notes
For reasons of better readability, the generic masculine is used in this text. Female and other gender identities are explicitly included where this is necessary for the statement.

Legal notice: This article does not constitute tax or legal advice in individual cases. Please consult a lawyer and/or tax advisor to clarify the facts of your specific individual case.

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