The turnaround in interest rates and the Viennese market
After two years of rising interest rates, the ECB changed course in the summer of 2024. What this means for buyers, sellers and investors in Vienna.
In June 2024, the European Central Bank cut its key interest rates for the first time since 2019. For the property market, this is more than just a news item from Frankfurt: financing costs were the reason why so little happened in Vienna in 2023. To understand what lies ahead, we need to take a brief look back.
How it came about
Until 2022, money was practically free. Mortgages with interest rates of around one per cent were the norm, prices rose year on year, and anyone who could afford to buy did so. Then inflation struck, and the ECB reacted more swiftly than ever before: within just over a year, key interest rates rose to their highest level since the introduction of the euro. Variable-rate loans became three to four times more expensive within months, and fixed-rate offers followed suit.
At the same time, strict lending rules came into force: higher equity requirements, capped loan instalments and shorter repayment terms. The result was a market in which sellers were unwilling to lower their prices and buyers could no longer afford them. In 2023, sales in Vienna were at their lowest level for many years.
What’s changing for buyers
Falling key interest rates do not automatically mean cheap loans. Banks pass on rate cuts with a delay; long-term interest rates are determined by the capital markets, not by the ECB; and lending standards remain strict. Anyone taking out a loan today is paying significantly more than in 2021 — but significantly less than a year ago.
The direction is more important than the figure. With the turnaround in interest rates, predictability is returning: anyone who agrees a fixed interest rate today knows they haven’t locked in at the peak. Those with variable-rate mortgages can hope for further relief. And those who held off until 2023 are now doing their sums again — we can tell from the enquiries, which have become more specific since the summer.
What’s changing for sellers
Prices in Vienna have remained largely stable over the past two years, with little change in prime locations but more noticeable fluctuations in less desirable areas. Those who had to sell during this period had to accept lower prices; those who could wait, did so. Those who waited are now returning to the market — but not all at once.
On the other hand, demand is growing faster than supply. New-build construction slumped during the years of high interest rates; projects were postponed or cancelled, and properties that were not started will be missing from the market as finished flats in two years’ time. For owners in sought-after locations, this is a favourable starting point: they are selling into a market where competition is dwindling.
What this means for investors
For investors, the period of high interest rates was a maths problem: why settle for a three per cent rental yield with risk when government bonds offer almost the same return? As interest rates fall, this calculation is turning round again. Multi-tenanted properties, investment flats and commercial property are becoming relatively more attractive — and with them, demand from investors who were sitting on the sidelines in 2023.
This is particularly true of properties with development potential, where the value lies not in the current yield but in what can be made of them. It was precisely these properties that were the most difficult to finance during the period of high interest rates — and they are now back on the market.
What happens next
No one knows how many interest rate rises are still to come, or how quickly they will happen. But the market doesn’t need a forecast to move — it needs confidence that it’s heading in the right direction. And this confidence has been palpable since the summer: more viewings, more concrete discussions, quicker decisions.
The market doesn’t turn round overnight. But it does turn round. Anyone wanting to buy or sell now should understand the market, not just the headlines — and have someone by their side who can tell the difference between the two.
