Mortgage rates head toward 4% as ECB ends cutting cycle

Private buyers heading into 2026 face a financing climate that is tightening, not easing. The European Central Bank meets on 18 December for its final rate decision of the year and is expected to leave the deposit rate at 2%. Yet German mortgage costs are rising again. Ten-year construction loans are back above 3.7%, fifteen-year loans sit higher still, and most forecasts now point towards 4% next year. Every major panel agrees that a decline is unlikely.

The reason is no longer the ECB. The cutting cycle that delivered support between mid-2024 and mid-2025 has run its course. Bundesbank President Joachim Nagel says there is “no need for action”, while Austria’s central bank chief Martin Kocher describes rate cuts as essentially over, arguing that policy must retain room to respond to shocks. Inflation at 2.2% in September reinforces this stance. With the central bank stepping back, the determinants of mortgage pricing have shifted to fiscal policy and bond markets. Germany is issuing large volumes of new government debt to finance deficits and infrastructure spending, pushing up yields on ten-year Bunds. Those yields are now close to 2.9%, and because banks price long-term mortgages on the back of the Bund curve, household borrowing costs rise in parallel.

As Interhyp’s Mirjam Mohr puts it, when government borrowing rises, yields rise, and construction financing has “little room for downward movement”. ING chief economist Carsten Brzeski frames it similarly: the era of rate cuts is over and the key influence is now government debt across Germany and the eurozone. For private borrowers, the ECB meeting on 18 December will confirm the direction of travel but will not change it.

Financing gets tighter as price environment stays favourable

For households planning to buy or build, financing is already noticeably more expensive. A standard €300,000 loan at today’s rates costs around €1,035 a month and would rise further if mortgage rates push through 4% next year. Those approaching the end of a fixed-rate period should begin renewal discussions early. Banks often present rollover offers only shortly before expiry, and several experts warn that these can be well above competitive market levels.

Yet the price side remains unexpectedly supportive. Although interest rates resemble those of autumn 2022, property prices do not. An analysis by Immowelt of 80 major cities shows that 63 have still not regained their 2022 peaks. In Munich, Stuttgart, Frankfurt, Ingolstadt and Freiburg, buyers now pay €100 to €200 less per month for comparable properties than they would have three years ago, despite equivalent interest rates. Only a minority of cities, including Bonn, Jena and Kaiserslautern, have moved above previous highs.

This gap between softer prices and firmer rates offers a workable entry point for households with steady incomes and adequate equity. The lending market is responding. Real estate loan volumes increased 18.2% in the first nine months of 2025 compared with the previous year, according to the Association of German Pfandbrief Banks (VdP), with growth accelerating to 20.4% in the third quarter. Mohr’s advice that those who have found the right property should act now reflects this narrow alignment of conditions.

Public support measures offer modest relief. From mid-December the federal government is reactivating €800 million of low-interest KfW loans for highly energy-efficient EH55 homes. These are available only for newbuilds that rely entirely on renewable heating, and the funding pot is expected to be drawn down quickly once applications begin, but the scheme can still improve affordability for eligible households. KfW loans currently account for nearly 8% of mortgage volumes.

A higher-rate world requires earlier planning

The message for private borrowers is straightforward. 2026 is unlikely to bring cheaper financing. Mortgage rates are now driven by Bund yields, which in turn are being shaped by government borrowing rather than monetary policy. The expert consensus is unified around rates stabilising between 3.5% and 4% next year, with risks pointing upward rather than downward. Only a serious economic downturn would push borrowing costs lower, and few buyers would welcome the backdrop that scenario implies.

Those preparing to buy should compare rates widely, budget realistically and move early on renewal discussions. Those able to combine bank lending with subsidised programmes should consider doing so while funds remain available. For now the coexistence of firmer rates and still-soft prices creates an opportunity that may narrow as 2026 progresses. Whether it survives the coming year will depend far more on the path of government borrowing and bond yields than on anything announced in Frankfurt on 18 December. Buyers waiting for significantly cheaper finance risk waiting in vain.