Unaffordable interest: Are many owners at risk of foreclosure?

Mercury Unaffordable interest: Are many owners at risk of foreclosure? Article by Markus Hofstetter • 22 hours Some property owners are worried about follow-up financing due to rising interest rates. One group in particular faces great danger. Frankfurt/Main - The golden times for property owners are over for the time being. Rising interest rates have far-reaching consequences for those who have to take care of follow-up financing. The future monthly payment can now be significantly higher, which could result in financial difficulties. Real estate owners are concerned about interest rate increases: EU Commissioner fears “social emergency” Liane Buchholz, president of a savings bank association, warned last year that many could lose their homes as a result. The EU Commission has also recently become aware of this development. “I fear a social emergency,” EU Economic Commissioner Paolo Gentiloni told Handelsblatt. Many property owners in Germany are affected, reports the business newspaper, citing data from the European Mortgage Federation. In the first quarter of 2023, around 17 percent of the newly concluded contracts would have a fixed interest rate of less than one year, and another ten percent would have a term of between one and five years. Property owners who took out their loans during times of low interest rates and whose fixed interest rate is now expiring are particularly affected. Depending on the amount of interest and repayment, experts calculate that the additional monthly burden can amount to around 1,000 euros. Real estate owners are concerned about interest rate increases: No mass fire sales “Anyone who went to the limit of what was possible at the beginning of the financing to acquire the property could then get into difficulties,” said Björn Pätzold from real estate financier Dr. Klein the Handelsblatt. However, experts do not expect mass fire sales and foreclosures due to increased household incomes. Nevertheless, Dorothea Mohn from the Federal Association of Consumer Organizations (VZBV) is calling for concrete help so that debtors can keep their credit and property. As an example, she cites promotional loans from the federally owned Credit Union for Reconstruction (KfW). The greatest risk is with variable interest rate mortgages However, there are greater dangers with mortgage loans with variable interest rates. “In many cases there is actually a risk of compulsory auction and, in the worst case, personal insolvency,” warns Patrik-Ludwig Hantzsch from Creditreform economic research. Since variable mortgage interest rates are constantly being adjusted, those affected notice interest rate increases from the ECB immediately. The costs of the increased interest rates could not be offset by temporary increases in the value of a property.