Why does affordable mortgage lending lead to success in the real estate market in Germany?

Real estate in Germany: affordable mortgage loans as a key to success

In recent years, an increasing number of foreign investors are considering the possibility of investing their capital in the German real estate market, which is seen as an attractive strategy for ensuring financial security and preserving assets. The largest cities stand out first, such as Berlin, Munich, Frankfurt, Hamburg, Düsseldorf, Cologne, and Stuttgart.

From 2015 to 2018, housing prices in these localities increased by more than30%According to analysts' forecasts, this trend is expected to continue in the future.

Real estate trends

Previously, purchasing a home was primarily seen as a solution for people planning for retirement. However, in the context of today's low interest rates, Germans are increasingly viewing real estate purchases as a way to generate rental income.

According to statistics, in recent years, the total amount of investments by Germans in real estate has exceeded160 billion eurosAnnually, and according to experts, this trend is expected to continue strengthening. This creates intense competition between local buyers and foreign investors, as the German market has become incredibly attractive for investments.

German real estate market as a market of objects

Recently, there has been an active discussion about how the German real estate market has essentially become a market of properties rather than buyers. According to the latest data from the research company PwC and the Urban Land Institute, Berlin continues to be the most liquid and stable location for investments in Europe, surpassing cities like London and Paris.

The key point here is the imbalance between supply and demand:

• The number of people wanting to buy a home significantly exceeds the available supply.
• High migration of the workforce to the western metropolises of Germany.

Interest in commercial real estate

Moreover, interest in commercial real estate has clearly increased, asaverage incomefrom such investments amounts to5 to 8%while the income from rental housing is approximately3.8%.

Additionally, following the UK's exit from the European Union, Germany has taken the lead in the mortgage market in Europe.

Available lending conditions

The success of the German real estate market can largely be attributed to favorable lending conditions, as mortgage rates vary from0.8% to 1.8%.

Today, German banks offer mortgages for a term of10 yearswith an average rate0.75%and in the long term15-year-oldof financing the percentage is1.04%.

These factors play an important role in maintaining a consistently high demand for housing and the steady increase in its prices.

Conclusion

Thus, there is an active growth of interest from both foreign investors and locals in buying and renting real estate, resulting in a dynamic competitive environment in this area. This attractive phenomenon not only strengthens Germany's position on the map of investment opportunities, but also allows investors to be confident of future returns on their investments.

Mortgage rates in Germany in 2020

In August 2020, interest rates on ten-year mortgage loans in Germany were close to record low levels, having reached a minimum point in March of the same year, when they dropped to an astonishing 0.68% in the midst of the pandemic. In comparison, the average rate five years prior was around 1.8%, and ten years ago it was even above 4%.

The popularity of floating rate loans

It should also be noted that variable-rate mortgages are not popular here, accounting for only 1% of the total. In contrast, their share in the UK reaches 72%, and in Spain, it is 75%.

Advantages and risks of floating interest rate

Borrowers can benefit from a variable interest rate only if it decreases — the longer this process continues, the more advantageous it is for the borrower. In Germany, changes in floating rates are determined by fluctuations in the EURIBOR rate.

However, at the moment, the euro is at a very low level, and it is unlikely that we should expect it to decrease — most likely, rates will rise, but it is not precisely determined when this change might occur.

Demand for housing in Germany

Analysts do not forecast any further decrease in interest rates over the next year, which creates high demand for real estate under such attractive lending conditions. Moreover, those planning to purchase an apartment or house for personal use can take advantage of the opportunity to obtain a subsidized loan from the state bank KfW, with an amount that can reach up to 100,000 euros.

How to apply for a mortgage in Germany

To apply for a mortgage in Germany, you need to visit any available bank that offers such services for both locals and foreigners, although with certain conditions.

• For German citizens, mortgage rates range from 1% to 2%.
• For foreign clients, they can be significantly higher — from 3% and above.

Banks consider each loan application individually. When analyzing applications, banks focus on the borrower's credit history and financial condition.

Requirements for borrowers

According to German legislation, a potential borrower must earn enough so that the mortgage payment does not exceed one third of their total monthly income. Additionally, having a down payment is an important aspect when considering an application. Typically, for foreign buyers, it is expected that the down payment will be 40-50% of the purchase price of the property.

If a foreign citizen is applying for a mortgage in Germany for the first time, the bank will typically approve a loan of no more than 50% of the property's value.

Loan-to-Value Ratio (LTV)

In general, Germany's loan-to-value (LTV) ratio remains low compared to other European countries, making the process of obtaining a mortgage more rigorous. Nevertheless, this system reduces financial risks for both banks and borrowers, providing greater stability in the housing market.

Opportunities for purchasing real estate

Given the current low interest rates, many residents are considering a great opportunity to purchase real estate, which in turn increases the demand for residential properties.

Strict mortgage lending conditions in South Korea and Germany

Unlike many other countries, South Korea has some of the strictest requirements for mortgage loans, allowing borrowers to obtain a maximum.75%from the cost of a house or apartment. Germany, in turn, allows you to take out a mortgage up to80%but this rule applies only to citizens of the country.

For foreigners who do not work in Germany, the limit is reduced to60%Although in practice, the broadcast often takes only50%If a person already owns property in Germany and their credit history includes at least one reliable mortgage, they can expect to60-70%financing. Banks are generally more willing to issue loans for expensive real estate, starting from300,000 eurosThus, for inexpensive properties, the process of obtaining a loan becomes more complicated.

Mortgage terms and payment conditions

Mortgage loans at banking institutions are offered for a fairly wide term — from5 to 30 yearsHowever, it should be taken into account that after some time, when the borrower repays the loan, they should not have more.65 years oldThe minimum age to obtain a loan starts at21 years old.

Mortgage interest rates fluctuate.

• Variable rates range from3%to4.5%.
• Fixed rates may exceed5%annual.

It is also worth considering that the total monthly contributions should not exceed35%from the borrower's monthly income.

The mortgage application process

The mortgage loan process usually takes aboutone monthMoreover, the costs for processing, including notary services, amount to approximately1%from the mortgage amount. Before entering the loan application process, the borrower needs to save about40%the total value of the property.

Documents and requirements for foreign citizens

For both German citizens and foreign nationals, obtaining a loan requires providing the bank with proof of stable and high income. For residents of countries outside the European Union, the following is necessary:

• Residence permit for an indefinite period.
• High income certificates.
• Documents confirming creditworthiness.

In addition, having permanent residency in Germany is more...10 yearsmay positively affect the chances of obtaining a loan.

Speculative tax on real estate sales

Also an important point to consider for both residents and non-residents is speculation tax. When real estate is sold duringten yearsAfter its purchase, a tax will be applied to the profit from the sale at a rate of30%However, after this period, tax obligations are canceled. Therefore, before making a decision to purchase real estate, it is advisable to thoroughly familiarize yourself with all the conditions and requirements related to mortgage lending in Germany. This will help avoid complications and make the right choice.

Conclusion

In conclusion to our research on the German real estate market, it is impossible not to highlight the key factors contributing to the growing interest from both local and foreign investors.Affordable mortgageis indeed one of the main secrets of the success of this market. Low interest rates and stable growth in real estate prices create attractive conditions for investment. I myself have become convinced of this by researching statistics and forecasts by experts in this field.

Germany, with its high liquidity and stable demand, especially in cities like Berlin, Munich, and Frankfurt, is becoming a true "haven" for those seeking reliable ways to invest capital. Statistics confirm that in recent years, housing prices have increased by more than30%and this trend seems to be continuing.

The mortgage application process

For those looking to secure a mortgage, it's important to understand that despite the highly competitive conditions, the process of obtaining a loan is quite feasible. You just need to be prepared for certain requirements and conditions, such as:

• sufficient income;
• down payment;
• individual bank assessment.

If you are considering the real estate market, Germany is exactly the place where tradition and modern business conditions intersect, creating profitable opportunities for everyone – both for investors and for regular buyers.

The probability of successful investing

So, if you have the opportunity, I recommend you to pay attention to this market and take advantage of the current economic conditions. I think that a competent approach and careful study of all aspects will help you make the right choice and get the most out of your investment in German real estate. Here, in the heart of Europe, there is every chance to become a successful real estate investor.Don't miss your chance!