Leverage effect explained: what rising interest rates mean for property prices

Anyone who buys a property with a loan uses leverage – and it works in both directions. This video explains the leverage effect in about six minutes with worked examples and charts, shows what rising rents and rent losses do, and why the recent rise in interest rates to around 4.5 % matters so much for buyers, investors and property prices.

What you will learn in the video

• The leverage principle: if the loan rate is below the property yield, the return on equity rises; if it is above, it falls.
• Example: apartment for 400,000 € with a 3 % yield: +10.6 % on equity at 1.1 % interest, −3 % at 4.5 % interest.
• Rising rent: at +2 % a year the rent in the example covers the interest after approx. 9 years; net rents 2025 +2.1 %; limits under §§ 557b, 558, 556d BGB.
• Rent loss: corporate insolvencies 2025: 24,064, the highest since 2014; 3 months of rent loss: return on equity approx. −6.8 % instead of −3 %; rent loss risk under Annex 3 ImmoWertV.
• Interest rates: end of 2020 approx. 1.1 %, August 2026 4.04 %, offers in early October 2026 approx. 4.5 %.
• Buyers: a monthly instalment of 2,000 € supports approx. 774,000 € of loan at 1.1 %, but only approx. 369,000 € at 4.5 %.
• Investors: price = income ÷ yield: from 2 % to 3 % the notional price falls by approx. one third (§ 21(2) ImmoWertV).
• Reality: residential property prices 2023 approx. −8.4 % (Destatis); Munich apartment buildings: multiple from approx. 49 to approx. 30.

Legal basis and sources (as of 9 October 2026)

• ECB/Bundesbank – MFI interest rate statistics, housing loans
• Baufi24 interest rate commentary 10/2026
• Destatis – house price index
• Destatis – press release no. 114 of 22 March 2024
• Destatis – consumer price index 2025
• Destatis – corporate insolvencies 2025
• Destatis – corporate insolvencies July 2026
• Federal Employment Agency – labour market September 2026
• Munich valuation committee (Gutachterausschuss) – half-year report 2026
• Section 194 BauGB – market value
• § 21 ImmoWertV – capitalisation rates
• §§ 27, 28 ImmoWertV – income approach
• § 505a BGB – creditworthiness assessment
• § 558 BGB – rent increase, cap
• § 32 ImmoWertV and Annex 3 – rent loss risk

This video is an information and promotional video of the real estate appraisal office STRECKEL for its own services. It provides general information, is not investment, financing, legal or tax advice and does not replace an appraisal of your property. Examples are simplified.

Legal notice – no investment advice

This video is for general information on property markets only. It is not investment advice or investment brokerage (§ 1(1a) KWG, § 2(8) WpHG, §§ 34f, 34h GewO), not legal or tax advice and not a solicitation to buy or sell. Personal circumstances are not taken into account. No guarantee; past developments are not a reliable indicator of future ones. Liability for investment decisions based on this video is excluded to the extent permitted by law; liability for intent and gross negligence and for injury to life, body or health remains unaffected.