Anyone who wants to buy a house will currently have to dig deep into their pockets to cover the interest rates. The Iran war is driving up inflation, which is having a chain reaction on home loans. Even tenants are feeling the consequences of inflation.
The surge in inflation and interest rates triggered by the Iran war is putting a strain on those interested in owning a home and the construction industry in Germany alike: real estate loans in Germany are currently more expensive than they have been since 2009. According to data from the financing broker Interhyp, the average interest rate on ten-year loans has currently reached just under 4.5 percent. This is what Interhyp CEO Jörg Utecht said.
In May, the average interest rate was 3.9 percent. At a good 4.4 percent, the previous interest rate high from the end of 2023 has now been exceeded, as can be seen in the Munich company's interest rate chart. The last time interest rates were similarly high was during the financial crisis in 2009, as can be seen not only from the Interhyp figures, but also from the Bundesbank's data on housing loans to private households. The reasons for the recent increase are, in particular, the resurgence of the Iran conflict and the resulting inflation concerns, as Utecht says.
As a result, the European Central Bank raised key interest rates to curb inflation. This results in the usual chain reaction to building interest rates. Only when there is a sustainable solution to the Iran conflict will inflationary pressure ease and building interest rates will also fall noticeably again, says Utecht. “However, there is currently little indication of this.”
Higher interest rates eat up cheaper prices
Real estate prices have not yet reached their highs from the years before the end of the zero interest rate phase in 2022. But higher interest rates quickly eat up a slightly lower price. For average financing, the recent interest rate increase means almost 200 euros more in monthly payments, says Utecht. “This leads to increased reluctance among some customers.” Nevertheless, interested buyers still have some leverage in their hands even in the current market phase.
Probably the most important lever is negotiations with the owner. “Many sellers still have the maximum prices from 2021/2022 in their heads,” says Dirk Wohltorf, President of the German Real Estate Association (IVD) – the umbrella organization of German real estate agents. The offer prices on the Internet are often still the sellers' desired prices, but are often no longer recorded as high. “If interest rates go up significantly, prices have to come down,” says Wohltorf.
Sellers inevitably accept price reductions
This is confirmed by Interhyp boss Utecht: "We experience in our consultations that sellers are increasingly willing to lower prices. Discounts on the price can be achieved through negotiations, especially for existing properties. "The mood is still clouded: The brokers are therefore brokering fewer purchase contracts than in previous years, as IVD President Wohltorf reports. "The buyers are unsettled and cautious."
It's not just those interested in owning a home who suffer. “The interest rate development is particularly affecting residential construction - with serious consequences,” says a spokeswoman for the regional association of Bavarian building guilds. “In Bavaria, as of July 2026, we have a cumulative decline in residential construction orders of -3.2 percent compared to the already weak previous year.” In a direct twelve-month comparison, the decline in orders in July even amounted to 8.2 percent. Bavaria is only one of the federal states, but the development of housing construction is similar everywhere.
“Many construction companies hardly have any residential construction orders left and, if there are any, these are just enough for the rest of 2026,” says the spokeswoman. These orders therefore date back to the time before the rise in inflation and interest rates. “Accordingly, we expect construction completions to continue to fall this year.”
LBS: Interest isn't even the biggest hurdle
The customers of building societies were lucky: the interest rates on the loans are set years in advance when the building savings contract is concluded, as a spokesman for Landesbausparkasse Süd in Stuttgart says. According to LBS's assessment, interest rates are not even the biggest obstacle: "The currently very high costs of purchasing real estate are only caused to a small extent by interest rates, but mostly by the sharp rise in material and labor costs in the construction sector, high additional costs and excessive government regulation," says a spokesman.
“This has meant that the big barrier to purchasing a property is currently not the mortgage interest rate and therefore the monthly payment, but the lack of equity.” This is a hurdle, especially for young people and families.
Impact on the tenants
Higher real estate interest rates are also affecting tenants. "The effect of the rise in interest rates is a little more muted for us because our companies build with subsidies," says Hans Maier, director of the Association of Bavarian Housing Companies (VdW).
Members of the VdW and its sister associations in the rest of Germany are predominantly housing cooperatives and municipal companies that have affordable apartments in their portfolio. “But of course we will feel it,” says Maier. Higher interest rates made construction costs more expensive. "Then the rent might be a euro higher." The VdW boss predicts that the run on state housing construction subsidies from the private sector will increase. This shouldn't be limited to Bavaria either.
