Interest rate development in 2019: the market surprises

The development of interest rates in 2019 teaches skeptics that interest rates can be particularly favorable in the long term

Completely unexpectedly, interest rates fall again. In 2018, it was clear to bankers and construction finance experts that bond rates would rise again this year. In fact, it was expected to be just under one percent at the time. The interest rate trend in 2019 is pointing in the opposite direction. What does this mean for construction financing?? Since the development of interest rates for construction loans is dependent on the development of federal bonds, construction loans will continue to be extremely favorable in 2019.

Interest rate trends in 2019: the bond market sets the tone

The federal bond yield is THE indicator for the development of mortgage rates. In february 2018, the interest rate was 0.7 percent. In the last few months, however, it has moved back towards the zero line again. It currently stands at 0.1 percent. 3 years ago, there was already a similar development. At that time, the yield on federal bonds fell to minus 0.2 percent. At that time, investors got back less money than they had lent to the state. The development of interest rates in 2019 indicates that yields of around zero percent can also be expected this year.

Interest rate development in 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, we expected to reach the 2 percent mark – the ECB's desired level – but today we are heading back towards 1.5 percent. And there are reasons for this: economic output in germany is declining. Companies' business expectations are declining. The international monetary fund, the german government and a number of economic research institutes are dampening forecasts. No one expects a real recession, but the forecast growth of approx. 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 interest rate hike could be one such measure. As a result, banks will continue to receive very favorable loans.

Interest rate development in 2019: very good for property buyers

Savers will not be satisfied in 2019. Interest rates on fixed deposit accounts will continue to hover near zero. Equities will also face a difficult year. Shareholders may suffer from the worsening economic outlook, which normally also reduces the profits of listed 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 there is a risk that savers and investors will lose wealth due to comparatively higher inflation.

Borrowers are among the only beneficiaries of the development forecast for 2019. Installment loans are offered around 4 percent. Real estate loans remain particularly favorable at just over one percent for a 10-year term and good debtor creditworthiness. In the long term, these favorable borrowing costs and rising incomes will thus largely offset the rise in the price of real estate. This means that many will still be able to afford the credit-financed purchase of a property. The safest way is to secure the current extremely favorable interest rate for as long as possible, so as not to fall into the debt trap when interest rates rise in the future. Take advantage of this interest rate trend now in 2019 – real estate loans practically can't get any more favorable than this.

The development of interest rates in 2019 teaches skeptics that interest rates can be particularly favorable in the long term

Interest rate development in 2019 comes as a surprise: contrary to all forecasts, the construction loan interest rate has fallen to a historically low level.

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