Shortages due to the Ukraine war and the sanctions against Russia are causing our prices to rise. Annoying for consumers: interest rates are now rising and with them the cost of credit – and probably in the long term.

According to the Federal Statistical Office, energy prices have risen by 35.2 percent and food is 8.5 percent more expensive than in the same month last year. A survey of banks in Germany shows that loans are also likely to become more expensive in the coming weeks. “Most banks are currently assuming that the lending guidelines, i.e. the requirements that borrowers have to meet for lending, will remain unchanged,” says Alexander Artopé, Managing Director of the credit platform smava. “However, consumers are likely to have to pay higher interest rates.”

According to a Smava survey from the beginning of April 2022, the majority of banks expect interest rates for consumer and real estate loans to rise, in some cases even sharply. “Experience has shown that banks will raise interest rates at different speeds and to different extents. Under these conditions, it will be even more difficult for consumers to find cheap credit on their own,” says Artopé, summarizing the results of the survey. The financial expert recommends making a comprehensive and up-to-date loan comparison in order to get an overview of what is on offer.

The majority of the banks surveyed expect an increase (69.2%) or even a very strong increase in interest rates for consumer loans (7.7%). Almost every fourth bank surveyed (23.1%) assumes that interest rates for consumer loans will remain constant.

“According to some banks, interest rates would have risen even without the war in Ukraine, as they are influenced by other factors such as inflation. We are currently not seeing any interest rate increases on the loans brokered through us. They are still well below 4 percent. Experience has shown, however, that banks react to uncertain situations at different speeds and to different extents. If interest rates rise, it is very likely that the already large interest rate differentials between banks will also widen. Under these conditions, it is easy to take out a loan that is too expensive,” says Alexander Artopé.

Most of the banks surveyed also expect interest rates for real estate financing, which have already risen significantly in recent months, to continue to rise (69.2%) or rise sharply (15.4%). Almost every sixth bank surveyed (15.4%) assumes that interest rates for real estate financing will remain stable.

“At the beginning of the corona pandemic, interest rates for consumer loans also rose, but leveled off again after a short time. Almost a quarter of the banks surveyed (23.1%) assume that interest rates will continue to do so in the current situation as soon as the banks can better assess the current situation. However, the majority of banks surveyed expect the war and sanctions to affect interest rates and lending standards as long as the war and sanctions last (30.8%) or even longer (46.2%)” , says Alexander Artopé.

The situation with real estate financing is similar. 15.4 percent of the banks surveyed assume short-term effects on interest rates and lending guidelines, 23.1 percent expect effects for the duration of the war. Almost every second bank (46.2%) expects that the war and sanctions will affect lending rates and lending standards beyond the duration of the war or sanctions.

In an uncertain situation like the current one, banks sometimes tighten their lending guidelines to avoid risks. As a result, fewer people interested in credit receive a loan. However, the banks surveyed do not currently assume this. The majority of banks expect lending standards for consumer loans (84.6%) and real estate finance (61.5%) to remain constant and unaffected by the Ukraine war and/or sanctions. Every sixth bank (15.4%) assumes stricter lending guidelines for consumer loans, almost every fourth (23.1%) for real estate financing.

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