Bremen – If you want to finance a property, you can currently enjoy low interest rates. But how long will that be? What homebuyers should consider when interest rates rise again and for whom such an investment makes sense.

 

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Although the US Federal Reserve has just postponed the planned withdrawal of its zero interest rate policy because of the weakening economy. But at some point – as the financial experts agree – the interest rates are raised again step by step and thus also loans again more expensive. This begs some buyers to ask if they should invest quickly now. In fact, it may be worthwhile. But not for everyone.

Hartmut Schwarz from the consumer center Bremen does not expect any major changes for the near future. It will continue to be possible for enough consumers to buy real estate. Therefore, he advises against hasty decisions – only to benefit from the currently historically low interest rates. “The only danger we see is that people now borrow money that they can not afford,” he says.

The consumer advocate recommends that you carefully calculate the monthly rate of a loan and when it must be paid off. “For financing, you should plan a maximum of 30 percent of the available net income,” says Schwarz.

Annabel Oelmann of the consumer center North Rhine-Westphalia in Duesseldorf advises to bring along sufficient equity: 20 to 30 per cent of the total sum, thus of purchase price and additional costs, are a good condition for the borrowing. Those who calculate too tightly make life difficult, warns them. Finally, there are often costs that consumers have not planned before.

Financial adviser Max Herbst from Frankfurt am Main considers a loan already feasible if its own funds cover the additional costs. Usually it is 10 to 15 percent of the purchase price. It is rarely worthwhile to postpone the building project, says Herbst. For example, a family often does not have the opportunity to save enough to get the much-recommended own contribution of at least 20 percent of the total costs. Nevertheless, she often pays 800 to 1000 euros per month for a flat. That adds up to 12,000 euros a year. Money that may be better invested in your own property.

Fall calculates: For a home purchase loan of 200,000 euros is often recommended an equity stake of at least 40,000 euros. Who wants to save this sum in five years, must set aside 660 euros per month. Consumers who can afford to save such a sum could immediately invest it in the repayment of a loan. Important: At least two percent repayment buyers should be able to afford according to Schwarz. Those with little equity need to look for a long term, preferably 20 years.

Annabel Oelmann is more cautious. While it might make more sense to start financing immediately, she points out, “If someone can afford extra spending on a monthly basis at a high rate, but has not yet managed to save equity, what is he asking? has spent his money so far. ” Sometimes a potential buyer may theoretically have enough income to pay installments, but first he has to learn how to properly manage it. “Therefore, it may make sense to save another five years, to do a trial run, as it were, to see if I can really make the payment every month,” says Oelmann.

Rising interest rates do not necessarily lead to priceless loans, says Hartmut Schwarz. He calculates: Someone takes out an annuity loan of 200,000 euros with a term of 15 years – with a repayment of 2 percent and 2 percent interest. In the end he has a residual debt of almost 131,000 euros. In a follow-up financing with 6.5 percent interest, he has fully repaid his debts after 29 years and seven months. Who concludes a loan in the same amount, but with 4 percent debit interest, has after Schwarz ‘calculation after 15 years, a residual debt of almost 118,000 euros. With a follow-up financing with 6.5 percent interest, the consumer can repay his debts in a total of 26 years and two months – for a loan with special repayment even faster.

“With an annuity loan, switching interest rates to repayments at higher interest rates is faster,” explains Schwarz. As part of the residual debt is repaid at each installment, the interest component is reduced. Therefore, the repayment portion will be higher.

Rising interest rates do not necessarily make a home purchase so prohibitive. However, Max Herbst points out that houses and land may become more expensive in the years to come. Then consumers have to raise higher loans.

 

Why do financial markets distrust the rescue of Spanish banks?

Why do financial markets distrust the rescue of Spanish banks?

  • Important questions about how the loan will be made are still unknown, such as where the money will come from, what interest or the final amount.
  • Elections in Greece and uncertainty about their outcome have accelerated the schedule of negotiations.
  • Keys to the rescue to the bank | Chronology of the European crisis.
Bolsa de Madrid

Interior of the Madrid Stock Exchange. GTRES

It had been expected for weeks and it was hoped that it would calm the financial markets. However, the rescue of Spanish banks, announced last Saturday, has not appeased the anger of investors : on Monday they opened with optimism and then placed themselves in figures of danger, milestones that continue in the day of this Tuesday, when the risk country has reached over 530 basis points. The rescue has not brought peace to the markets.

Some voices have come out to criticize this rescue and the different versions of it (Spanish Government, EU, opposition, etc.) show that there is still a lot to work on so that this decision can bring the desired tranquility.

Those not so small “details”

 

The government sold the ransom (or the loan line, as they like) as great news. So good that, in an attempt to normalize, President Rajoy went to Poland to see the debut of the national football team in the European Championship. However, it seems that there are still many things to decide and things that are not precisely details.

“There are two doubts that make it impossible for investors to react positively,” explains Pompeu Fabra University economics professor José García Montalvo, ” the technical details and the final amount that will be provided .”

There are two details that concern investors: the technical details of the rescue and the amount that will be provided. These “details, which really are not,” technicians are of vital importance: the first thing is to know the interest that the loan will be made – there is talk of 3% or 4% – or where the funds will come from for that financing . These billions can come from two places: the European Stability Mechanism (Mede) or the European Financial Stability Fund (EFSF). If it comes out of the first (which has 240,000 million euros in fund), the EFSF would issue debt and then lend it to the State in question with a small charge. This debt has no collection priority over other investors.

On the other hand, if the loan comes out of the Mede, it would have collection priority over other debts. Something that would make the debtors of Spanish banks nervous. The Minister of Economy, Luis de Guindos, played down this issue and assured that the loans would come from one or the other.

In the British newspaper The Guardian , which does not rule out the need for an even greater bailout for our country, picks up the concern of holders of Spanish debt bonds in case you choose the Mede. In that case, their payments would be in second place after the rescue loan, which would have priority to be returned and that would pose more risk to them.

The doubts about the amount that will finally be requested is not minor, although it will be cleared, predictably, next day 21 when the external audits present their reports on the Spanish banking. In any case, “if you ask for a small amount (40,000 million), it serves to cover provisions of the past and in six months we would be the same”, explains Professor García Montalvo. “On the other hand, if you ask for a lot (100 billion or more), you could activate the credit, if there was a demand for credit, but there would be a very bad signal on the Spanish banking system and doubts could persist.”

The Nobel Prize for Economics Paul Krugman, in his column for The New York Times , wrote on Tuesday that ” there is nothing wrong with this latest rescue plan (although much will depend on the details that are still unknown).” However, Krugman charged against European political elites, “willing to defend the banks and failing people” and warned that “the absolute catastrophe may be around the corner.”

The decision of Greece

Greece, the first country rescued and the one that suffers the most dramatic situation, continues to worry the eurozone. The choice of last weekend to decide the Spanish rescue was not taken lightly: this Sunday the Greeks return to the polls and the result is an unknown .

Foreseeing that some party like the left coalition, SYRIZA, which could reject the conditions imposed by the EU on Athens and force its exit from the euro, the eurozone had to take the necessary measures to avoid that, if that assumption were given, it would not affect to the weak Spanish and Italian economies.

Stiglitz does not like it

The first Nobel Prize in Economics to criticize was Joseph Stiglitz , who assured that the rescue plan for the eurozone will not work. “The plan is: the Spanish government rescues the banks and the banks rescue the government, it’s the voodoo economy, it will not work, it’s not working.”

Professor García Montalvo believes that ” there are people who do not realize that doing nothing is no longer an option , Spanish financial reforms obliged banks to make provisions with 80,000 million that are not available. put the money, something that would further trigger the risk premium and definitively close the market to Spain, or the rescue “.

An aid that accentuates the public debt

Another issue is how this rescue affects the Spanish public debt. Fidelity’s global equity investment director, Dominic Rossi, explained that European aid of up to 100,000 million euros, instead of separating the problems of banking from sovereign problems, what this help does is to bring them together .

While equity markets rose in response to the announcement of the bailout, Rossi continues, the government bond market has quickly recognized that aid adds pressure to sovereign risk , which has been reflected in the rise in Spanish debt yields. to 10 years.

In addition, this injection of capital has to go through the Spanish national accounts, which actually means that the Government is “stuck”, as it adds 100,000 million euros, or whatever the final amount, to the current level of Spanish public debt.