Dusseldorf Anyone who takes out a real estate loan can look forward to extremely low interest rates for several years. Many bank customers apparently assume that nothing will change in the luxurious financing situation any time soon. In any case, there is hardly any demand for forward loans, which can be used to secure the current interest rates for follow-up financing.
Their market share was negligible in December, reports Michael Neumann, CEO of the real estate financier Dr. Small. Figures for January are not yet available. “Because a relevant increase in interest rates is not to be expected in the near future, there is no immediate need for action for follow-up financiers,” comments Neumann.
Around the turn of the millennium, the interest for building loans with a term of ten years was still an average of 6.5 percent per year. Since then they have fallen to 0.6 percent. Anyone who took out a forward loan in the past two decades was wrong with their interest rate bet and paid more. No wonder the products are no longer in demand. Gradually, however, it is time to rethink.
Interest rates on federal bonds have been below zero for some time and are now well below the rate of inflation. “The likelihood of them going up increases. When the time comes, building interest will also increase,” says Max Herbst, head of FMH financial advice in Frankfurt.
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The rise in interest rates is likely to drag on for years. But there is something else that speaks in favor of considering forward offers for follow-up financing: the forward premiums that customers pay in return for the fixed interest rates are at a record low. A hedge against interest rate increases is therefore cheaper than ever.
For the Handelsblatt, the FMH experts took a look at which banks and financial service providers offer particularly cheap forward loans. Both interest and forward premiums were included in the valuation.
There were plus points if borrowers can change the amount of repayment during the term – and if this step does not result in an interest premium and is also possible if customers fall short of the agreed fixed interest period thanks to faster repayment.
Flexibility is important, Herbst thinks. “Because of the low interest rates, many bank customers started with high repayment installments,” he says. Because building loans run for many years, it can happen that the living conditions of the borrower change during the term. Then it may help to screw on the monthly installments.
Bank customers can choose how long the lead time of a forward loan should be, i.e. how early they close it before their current financing expires. The longer the lead time, the higher the forward premium, because the bank then factors in a higher interest rate risk. The FMH evaluation shows: Even with forward loans with a long lead time and long fixed interest rates, consumers can now find offers with extremely favorable conditions.
In the case of forward loans with a fixed interest rate of 15 years and a lead time of three to four years, FMH once awarded the grade “very good” to DEVK. It completely dispenses with the forward surcharge and also offers a favorable annual effective interest rate of 0.9 percent.
The insurer is also convincing in terms of flexibility. Borrowers are allowed to turn the repayment once a year without an interest surcharge. At least three nationwide banks were able to get the grade “good”: the Münchener Hypothekenbank, the Postbank and the Degussa Bank. For the first two, premium and interest add up to up to 1.12 percent per year, depending on the lead time. At Degussa, it will be slightly more expensive at 1.24 percent annually with a lead time of four years.
Offers from regional banks can be worthwhile
The regional banks cannot keep up with the top offers from nationwide banks and insurers. If you still want to go to a bank in your region, you’re lucky if you live in the federal capital: Among the regional banks examined by FMH, Sparda-Bank Berlin offers the best conditions with an effective annual interest rate of 1.28 percent for a four-year lead time.
Even if the lead time may be shorter, borrowers are in particularly good hands with DEVK. The conditions there are equally favorable over all lead times. Degussa Bank customers have similarly low costs if they sign a forward contract just one to two years in advance. In this case, the premium is 0.06 or 0.18 percent.
Plus interest, customers then pay 0.87 or 0.99 percent per year. Degussa gets the grade “very good” for this offer – as does Santander: Customers there pay no premium at all for loans with a short lead time, and 0.18 percent for two years in advance. Overall, the annual percentage rate is between 0.81 and 0.99 percent.
In the case of forward loans with a short lead time, it may be worth taking a look at the offers from regional banks. The PSD Bank Rhein-Ruhr, for example, is quite competitive with interest rates of 0.79 and 0.91 percent per year. The Sparda-Bank Hessen also offers a favorable effective interest rate, but is relatively inflexible when it comes to changes in repayments.
If real estate owners want to take out a forward loan with a ten-year fixed interest rate, they do not have to consult any completely different banks or financial service providers than for offers with a longer fixed interest rate. Those who offer favorable conditions are currently offering them largely independently of the duration of the fixed interest rate and the lead time. In the FMH ranking, names such as DEVK, Degussa Bank, Münchener Hypothekenbank and Postbank are at the top, even with shorter interest rates.
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