Inflation, rising interest rates, energy crisis – how do you (continue to) finance a property now?

We've just experienced a long period of low interest rates, which allowed many to take out a mortgage. Currently, however, high repayment rates are making homeownership a distant dream for many. The looming surge in utility costs is also creating uncertainty. How can people still finance their dream of owning property or an existing mortgage?

With a loan term of ten years, it's clear that interest rates have tripled in some cases since the beginning of the year. The current nominal interest rate of approximately 3.1 percent (as of July 2022) also brings stricter requirements for mortgage financing. Furthermore, a negative SCHUFA entry significantly reduces the chances of obtaining financing. Buyers should carefully consider how they can (continue to) manage the high monthly payments and, if possible, have any negative SCHUFA entries removed.

Refinancing, inflation and high interest rates

The favorable conditions of the low-interest-rate period are replaced by higher interest rates when a new loan agreement is signed. Therefore, refinancing to obtain better interest rates doesn't make sense. A forward loan, i.e., early refinancing, has the advantage of allowing you to lock in the current interest rate. However, fees are incurred for early termination of the contract. Banks typically charge a prepayment penalty. When considering further home financing, carefully examine the offers and compare loan options before choosing a bank.

How can I improve my credit rating?

There are ways to improve your credit rating, even if reducing your expenses seems difficult at first glance.

• Please pay your invoices by the specified date
• Refinance your other loans
• Don't live beyond your financial means
• Close unused bank accounts
• Improve your SCHUFA score: request your SCHUFA credit report – this is possible once a year – and ask which entries can be deleted

If, despite everything, your refinancing becomes jeopardized and you can no longer pay off the property, you as the owner can seek support from a local real estate professional. Before the worst-case scenario of foreclosure occurs, they will work with you to find a solution that suits your individual situation.

Are you looking to finance a property or do you want to know what options you have if your loan application is rejected? Then contact us. We'd be happy to advise you.

Note:
For the sake of readability, this text uses the generic masculine form. Female and other gender identities are explicitly included where relevant to the statement.

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

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