Mortgage in Germany
Mortgage rates
Mortgage limit
Mortgage term
Germany has one of the lowest interest rates for mortgage loans in Europe. German banks issue loans to purchase property to residents and foreigners alike. The process takes one month on average and costs about 1% of the loan value.
Standard terms and conditions of mortgage lending in Germany for non-residents
| Mortgage terms and conditions | |
|---|---|
| Average loan amount available for foreigners | |
| Average interest rate | 1.3–2% p.a. |
| Average loan term | 20 years |
| Requirements to the borrower | |
|---|---|
| Minimum age | 21 years |
| Maximum age at the end of the loan term | 65 years |
| Maximum loan repayment ratio | 35% of annual income |
If an investor takes out a loan for a buy-to-let property in Germany, then the loan will increase the return on investment by leverage because the cost of the loan is usually less than the rental revenue. So, if a €600,000 property generates €30,000 in rental revenue per year, a €300,000 mortgage at 1.5% p.a. will increase the return on investment by at least 1.5 times. In addition, taking out a mortgage reduces your income tax as interest expenses are deducted from the income of the investor.
According to web portal Statistica, between 2013 and 2020 German mortgage rates fell from 2.8% to 1.3% on average.
Favourable lending conditions are stimulating demand, and construction volumes are growing.
In 2019, more than 360,000 permits were issued for the construction of new residential properties – the highest since 1999.
Bank requirements for mortgage applicants
To take out a mortgage in Germany, one has to provide the following documents to the bank:
- A foreign or national passport and a copy of the passport;
- Application form containing the applicant’s personal data;
- Proof of stable income (individuals are required to provide income tax certificates while corporate entities are to submit company reports);
- Documents related to the property the borrower is planning to buy – an extract from the land registry (not older than six weeks), housing regulations, photographs and description of the property;
- Lease agreement (if the property is leased);
- Proof of sufficient funds to make initial payment for the property purchase;
- Report on the independent appraisal for the property evaluation.
All documents must be in German or translated and notarised.
What is an "application form containing the applicant's personal data"? What information should it contain?
— The application form should contain brief information about the borrower, his/her property, data on monthly incomes and non-discretionary spending (other loans, rent, utilities, alimony) and insurance.
German banks are more likely to finance the purchase of a new house or apartment in a new building. Creditors become more demanding when it comes to buying property in the existing housing market — they are meticulous in assessing condition of the property and take into account its year of construction.
The bank is more likely to approve a mortgage if the real estate has been leased or will be leased.
If you apply for a mortgage at a bank where you already had an account for some time, an approval will take less time as the bank will be able to quickly assess your capacity to pay back the loan.
Loan amount
For non-residents, German banks usually issue mortgages not exceeding 50% of the real estate value. However, for those who take out multiple mortgages, less stringent requirements are applied: the bank can finance up to 70% of the cost.
To approve a mortgage, banks require an independent certified specialist to appraise the real estate. Payment for these services is borne by the customer. The average independent appraisal fee is 0.2–0.3% depending on the value of the property. The mortgage sum is a percentage of the appraisal value or a percentage of purchase agreement price, whichever is lower.
Many banks issue mortgages in Germany only for properties above a certain value, for example €100,000.
Interest rate and repayment
The average mortgage rates in Germany is between 1.5-2% per annum. Lately, loans with a fixed rate throughout the mortgage term have become more common in the country.
As a rule, the mortgage is repaid in monthly annuity payments, i.e., repaid in equal amounts throughout the mortgage term. This includes repayment of the principal and interest charged by the bank for the mortgage issue.
A customer can negotiate for an option to repay the loan early — in this case the mortgage rate will most likely be higher. If this option is not exercised in advance, the customer will have to pay a penalty.
Customers who apply for mortgages to buy real estate are advised to take out a loan that allows for accelerated repayment of the principal.
These loans allow repayment of up to 10% of the principal once a year, besides annuity payments.
If the borrower regularly takes up this option, then the unpaid balance at the end of the term will be low.
Loans with a floating rate are available as well. These rates are based on Euribor (the average rate for interbank lending).They are revised every one or two quarters and include a 1.5-2% margin for the bank.
The floating rate is lower than the fixed one. However, it carries higher risks. Since Euribor is already negative, there is a high probability that it will begin to grow in the near future.
Mortgages in other countries:
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