Although this reduces the risks to households of possible changes in interest rates during the interest rate lock-in period, banks’ interest rate risk increases inversely. It is impossible to predict when the favourable lending conditions – which are not confined to the area of real-estate financing – will reverse themselves.
A hike in interest rates would entail a decline in valuations and prices in the financial markets. Funding which, under the current conditions, seems adequate could prove no longer sustainable. Each and every individual market participant can hedge against this scenario – through an adequate capital ratio and by structuring contractual terms in a forward-looking manner.