Real estate market: Building interest rates of up to 4.9 percent are slowing down purchases and new construction

Up to 4.9 percent interest

Interest rate shock paralyzes the real estate market

Almost five percent interest on your own home, stagnating purchase prices and skyrocketing rents: the real estate market is in a quandary. Two researchers have an idea of ​​how the state could help.

The Inflation rate According to preliminary information from the Federal Statistical Office, in Germany fell in October: consumer prices were 2.8 percent – after 3.3 percent in September. The price pressure is therefore temporarily easing. For the year as a whole, economic research institutes such as LBBW expect an annual inflation rate of around 3.0 percent – a value that is still one percentage point above the European Central Bank (ECB) target.

Nevertheless, the situation for property owners, buyers and tenants remains tense: a high key interest rate means that the market for purchase and rental properties remains challenging. Sellers can hardly find any prospective buyers, tenants are finding it increasingly rare to find affordable living space and potential buyers are finding it increasingly difficult to finance their dream of owning their own home.

Dirk Eilinghoff, an interest and real estate expert at “Finanztip,” explains: “Since last June, both the base interest rates and the building interest rates have risen by 0.5 percentage points. The building interest rates are therefore higher than they have been since around 2010.”

This is also shown by the current “Finanztip” evaluation: for all fixed interest rates considered, the building interest rates are now well over four percent per year. The “Finanztip” interest barometer shows interest rates of 4.4 percent for five and ten years, 4.7 percent for 15 years and 4.9 percent per year for 20 years. The values ​​apply to loans with 60 and 80 percent loan to value (as of October 25, 2026).

The increased building interest rates are bad news for home buyers and for owners who financed their property in the 2010s – back then, often at interest rates of just one to two percent per year. “Construction financing is becoming significantly more expensive for initial and follow-up financiers,” says Eilinghoff.

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How high your monthly burden will be depends, among other things, on the loan amount and the repayment. An example: For a loan of 300,000 euros and two percent initial repayment, the monthly rate with 4.4 percent interest is 1,600 euros. A year ago it was 1,400 euros with interest rates of 3.6 percent. That’s 200 euros more per month or 2,400 euros more per year – for the same loan amount.

A study by the German Economic Institute Cologne (IW) says high interest rates are now slowing down the entire German real estate market. Prices for condominiums rose by only 0.3 percent in the third quarter compared to the same period last year, while single- and two-family homes rose by 0.4 percent.

“The purchase prices have been moving largely sideways since 2023,” is the IW’s conclusion. “Compared to the peak in 2022, they are a good ten percent lower.” At the beginning of this year, according to IW, it looked as if asking rents and purchase prices would converge with an annual increase of three to four percent.