Buying a house or apartment: is it still enough for your own property?

2022-04-30T13:54:59.679Z

Millions of people dream of their own home - but with higher interest rates, this dream is becoming more and more expensive. How to find out whether you can still afford a house or an apartment.

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Detached houses in the Hanover region

Photo: Julian Stratenschulte / dpa

The complaints have been heard for years - but they are getting louder: Fewer and fewer people could still afford their own four walls - especially in metropolitan areas.

Despite this, people have continued to buy merrily for the past ten years, and the prices are rising higher and higher.

That could soon be over.

Because one essential requirement is no longer applicable: record low interest rates.

Interest rates have been rising again for a year, and in rapid increments since the turn of the year.

This makes financing drastically more expensive.

Will this turn the tide on the housing market?

The numbers are frightening

In principle, the new combination of interest rate and price increases should deter customers.

Let's take a fictitious example: Otto Baumann would like to buy a property for EUR 500,000 (including all ancillary costs) and has saved up EUR 100,000 in equity.

Then he needs a loan of 400,000 euros.

These are currently standard sizes for apartment purchases.

Otto Baumann is running late.

The prices have risen significantly over the past ten years.

But because interest rates fell at the same time, the monthly installments for financing hardly changed until last year.

Last summer he could have taken out his loan for less than one percent interest on average.

That is only changing now: interest rates have reached well over two and a half percent.

The average monthly payment for a loan has risen by EUR 120 to EUR 1,270 since the spring of last year – i.e. by ten percent more.

According to the figures from Germany's largest credit broker Interhyp.

Other construction financing brokers such as Hüttig & Rompf calculate that after the rise in prices and the rise in interest rates, their customers now have to work an average of 71 months exclusively for the loan for their own four walls; ten years ago, customers got by with 50 months of work.

The Interest Club

The following sample calculation also shows how much the interest rate can still hit.

With an interest rate of less than one percent, as has been the case in recent years, and an initial repayment of three percent per year, which many banks suggested at the time, our customer Otto Baumann would have had 16,000 euros per year in interest and interest for the 400,000 euros loan have to make repayment.

If interest rates rise to three percent in the course of this year and the bank continues to demand three percent repayment, 24,000 euros are due per year instead - calculated on the month, instead of the previous 1330 euros, now a whopping 2000 euros.

Few households can afford that.

The income should be above average.

Anyone who bought a 70 square meter apartment last year and earned an average income had to spend almost half of their net income on the installments in Berlin.

In Munich even more than half.

And most buyers want more than 70 square meters.

The example of Otto Baumann is pointed, but not unrealistic.

Even with a loan of EUR 300,000 and interest rates currently at around 2.5 percent, the monthly installments could rise by EUR 375, Interhyp calculated for me this week from the figures available to it.

Where is the price effect?

So far, however, the rising interest rates have not slowed down house prices: the average loan amount rose in the first quarter compared to the previous year by EUR 40,000 to around EUR 390,000, according to Interhyp board member Miriam Mohr.

How does it work?

Why are the number and volume of construction loans still increasing?

When it comes to the number of construction loans, the answer is still simple.

Many homeowners are now signing a new loan agreement, a so-called forward loan, in order to be able to continue the financing they may have started in 2014 in 2024 on favorable terms.

With a forward loan you can now secure the currently still relatively low interest rates for a price premium for the future.

big city view

When asked about increasing volume, the answer is more difficult.

Sometimes the view of the big city obscures the view of the market as a whole.

In small towns and in the countryside, real estate was and is much cheaper to buy.

On national average, an average earner only has to spend 20 percent of his income on buying a 70 square meter apartment - not half as in Berlin or Munich.

Traditionally, the proportion of property owners outside of the metropolises is significantly higher.

In small towns, almost 60 percent live in their own property, the majority of them in single-family and terraced houses.

In big cities only 30 percent, in Berlin even less.

The role of investors

Equally important: Especially in large cities, investors seem to be taking over an ever larger part of the housing market - i.e. those who do not even want to live in the four walls they have bought, but want to rent them out and maybe sell them on in a few years.

Not only in extreme cases such as in Frankfurt am Main, where, according to local media reports, high-rise apartments are sometimes almost largely sold abroad - apartments in which then often no one lives, no buyer and no tenant.

Of course, most homebuying investors don't do it that well.

The agents of Hüttig & Rompf say that the number of investors among their credit customers has doubled to 30 percent in ten years.

And among baby boomers, the trend towards second homes is continuing – especially among those people who don't want to take their money to the stock market.

There are also institutional investors, who are playing an increasingly important role in German housing construction.

This was last seen in January, when the construction industry roared because the KfW subsidy for the standard energy-saving house 55 property was dropped.

If the subsidy paid is divided by the number of applications stated at the time, it becomes clear that the applications were for an average of eight apartments each.

The individual builder was the exception rather than the rule.

options for action

What does that mean in concrete terms for everyone who still wants to buy now?

Construction financing is becoming significantly more expensive.
Before you start dreaming, calculate how much credit you can actually afford.
You are welcome to use the »Finanztip« calculator.
If you want to buy a second property for rent, calculate again how high the rental income should be that you need for financing.
And then check whether such rental income is even achievable with your planned property.
Use the municipal rent index and the asking prices on portals such as Immoscout and Immowelt.
My rule of thumb: After 25 years, the basic rent should have financed the price of the apartment.
If the achievable rent is 1000 euros, the property should not cost more than 300,000 euros (1000 euros x 12 months x 25 years).
When you buy, be sure to have a mortgage broker make you a financing offer - don't just go to your house bank.
Check whether the intermediary has taken all the funding pots into account.
In particular, there are subsidies for the refurbishment of old buildings, from payment for the energy consultant to a 45 percent subsidy when replacing the old oil heating system to inexpensive loans and subsidies for complete energy refurbishment.
Then go to your house bank with such a financing plan.
Get a comparison offer there.
If the house bank cannot keep up, you have found a cheap offer through the intermediary.
If she goes along, you not only have financing from the bank you trust, but also the security that this offer is really cheap.

But one thing is very important to me: If there is not enough money for a property, then it is not enough.

Don't be tempted by your desires.

And don't get carried away by being overly optimistic.

Rather decide what you can do without in terms of square meters and location.

In the country it is still significantly cheaper: always a possibility if there is a school, hospital and train connection.

Maybe the dream of your own balcony is over.

Source: spiegel

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