German mortgage rates hit highest level since 2009

Mortgage rates in Germany have reached their highest level since 2009 as inflation and interest rate increases triggered by the Iran war weigh on homebuyers and the construction industry.

The average interest rate on 10-year home loans has climbed to around 4.5%, up from 3.9% in May, according to mortgage broker Interhyp.

The increase has pushed rates above their previous peak of just around 4.4% in late 2023, with borrowing costs now at levels last seen during the financial crisis in 2009.

Interhyp chief executive Jörg Utecht attributed the latest rise primarily to renewed tensions over Iran and the resulting inflation concerns.

The European Central Bank has raised interest rates to curb inflation, adding to pressure on mortgage costs.

Utecht said rates were unlikely to fall significantly until a lasting solution to the Iran conflict was found. "There is currently little indication of that."

Property prices in Germany remain below the peaks reached before interest rates began rising in 2022. However, higher borrowing costs can quickly offset the benefit of slightly lower prices.

The latest increase adds almost €200 ($225) to typical monthly mortgage repayments, making some prospective buyers more hesitant, Utecht said.

However, buyers could negotiate lower prices, said Dirk Wohltorf, president of the German Real Estate Association (IVD), noting that many sellers still expected prices seen in 2021 and 2022.

The construction industry is also feeling the pressure. A regional construction industry association in the southern state of Bavaria said many companies had little residential building work left and warned of further declines in housing completions this year.