After a period of record-low mortgage interest rates, the cost of mortgage borrowing in Germany surged in 2022. In 2019, mortgage rates declined notably, falling as low as 1.16 percent in December 2020. This downward trend reversed in 2021, as mortgage rates started to gradually pick up. Five-to-ten-year mortgage loans had the lowest rates in October 2023 at 3.85 percent, while floating rate mortgages up to one year were the most expensive at 5.53 percent. Mortgages with over 10-year fixed period – the most popular loan type among homebuyers - had an interest rate of 3.9 percent.
Why did mortgage rates in Germany increase?
In 2022, the yearly inflation rate in Germany experienced a swift rise, prompting the central bank to raise interest rates to counter this surge. The European Central Bank (ECB) is responsible for determining Germany's central bank interest rate. In July 2022, following a prolonged period of stability, the average interest rates in Germany began a steady rise, which persisted consistently thereafter. This increase is intended to stabilize prices, but it also means higher borrowing costs for those seeking mortgages.
Downturn in Germany's home loan borrowing
From 2022 onward, the gross residential mortgage lending in Germany fell dramatically. Besides the higher interest rates, the downturn can be explained by the slowed pace of economic growth, which makes individuals and businesses more cautious about big investments such as buying a home. Additionally, the German housing market suffers a chronic undersupply, meaning that homebuyers often struggle to find an affordable home to purchase.
Monthly effective residential mortgage interest rates in Germany from January 2015 to October 2023, by mortgage term
Characteristic
Total
Renegotiated loans
Floating rate or up to 1 year
Over 1 year and up to 5 years
Over 5 years and up to 10 years
Over 10 years
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The source adds the following information: "The effective interest rates are calculated either as annualised agreed interest rates or as narrowly defined effective rates. Both calculation methods cover all interest payments on deposits and loans but not any other related charges which may occur for enquiries, administration, preparation of the documents, guarantees and credit insurance. Disagios are regarded as interest payments and included in the interest rate calculation. The annualised agreed interest rate and the narrowly defined effective rate differ in the underlying method of annualising interest rate payments."
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Deutsche Bundesbank. (December 4, 2023). Monthly effective residential mortgage interest rates in Germany from January 2015 to October 2023, by mortgage term [Graph]. In Statista. Retrieved September 01, 2024, from https://www.statista.com/statistics/1231989/residential-mortgage-rate-germany-by-mortgage-term/
Deutsche Bundesbank. "Monthly effective residential mortgage interest rates in Germany from January 2015 to October 2023, by mortgage term." Chart. December 4, 2023. Statista. Accessed September 01, 2024. https://www.statista.com/statistics/1231989/residential-mortgage-rate-germany-by-mortgage-term/
Deutsche Bundesbank. (2023). Monthly effective residential mortgage interest rates in Germany from January 2015 to October 2023, by mortgage term. Statista. Statista Inc.. Accessed: September 01, 2024. https://www.statista.com/statistics/1231989/residential-mortgage-rate-germany-by-mortgage-term/
Deutsche Bundesbank. "Monthly Effective Residential Mortgage Interest Rates in Germany from January 2015 to October 2023, by Mortgage Term." Statista, Statista Inc., 4 Dec 2023, https://www.statista.com/statistics/1231989/residential-mortgage-rate-germany-by-mortgage-term/
Deutsche Bundesbank, Monthly effective residential mortgage interest rates in Germany from January 2015 to October 2023, by mortgage term Statista, https://www.statista.com/statistics/1231989/residential-mortgage-rate-germany-by-mortgage-term/ (last visited September 01, 2024)
Monthly effective residential mortgage interest rates in Germany from January 2015 to October 2023, by mortgage term [Graph], Deutsche Bundesbank, December 4, 2023. [Online]. Available: https://www.statista.com/statistics/1231989/residential-mortgage-rate-germany-by-mortgage-term/