The capital market is the main driver behind the latest rise in interest rates. In Germany, the top interest rates for property finance in October 2026 stand at an average of 4.53 per cent, according to Baufi24. At the same time, JLL reports that the German investment market has stagnated after nine months. The transaction volume reached 23.9 billion euros, remaining merely at the previous year’s level.
For buyers, this has a direct impact on affordability. For a loan of 400,000 euros, the annual interest burden rises from 12,000 to 18,000 euros when the rate is 4.5 per cent instead of 3.0 per cent. That is an extra 500 euros per month, without financing even a single square metre of additional living space. It is precisely this mechanism that is driving down the maximum affordable purchase prices whilst simultaneously making it more difficult to calculate the costs of new housing projects.
Pressure on buyers and developers
The situation is particularly precarious for property developers. They often finance a significant proportion of land and construction costs through borrowing. When loans become more expensive and private buyers are able to pay less due to the same shift in interest rates, new-build projects come under pressure from two sides. On the investment market, a second effect comes into play. Higher yields on German government bonds raise investors’ expectations regarding property returns, which, with rents remaining unchanged, triggers additional price pressure.
US slips deeper into the affordability trap
In the US, the situation is even more acute. The Mortgage Bankers Association reported an average rate of 7.49 per cent for 30-year fixed-rate mortgages for the week ending 2 October 2026. Freddie Mac reported 7.40 per cent for that week, the highest level since November 2023. At the same time, listing data is showing the first signs of a market slowdown. Realtor.com put the median asking price in September 2026 at $419,250, 1.4 per cent below the previous year. Prices had been reduced on 20.8 per cent of listings.
For owners of commercial property in the US, this also exacerbates the refinancing risk. Older office properties, in particular, are suffering doubly from falling valuations and more expensive borrowing. A look across the Atlantic thus illustrates what also threatens in Europe if the capital market continues to drive up mortgage rates and stifles the brief recovery in the property market once again.
