Costs involved in buying a house

[TalkMunichAdmin]

Compared to the UK, buying a house in Germany requires a far higher minimum initial outlay.  What I am interested in finding out, is what exactly the minimum is.  I know this depends largely on the property being purchased.
I am referring to the:

• deposit
• one-off service fees (solicitor, broker, mortgage lender, etc)
• any taxes that may come into effect
• any potential legally obliged modifications to the house itself (e.g. maybe to meet insulation targets or something like that)

It can be a very expensive business buying a house and I guess it pays to know all the possible fees which may have to be tackled.  If anyone knows anything about this then please feel free to contribute to this thread.

[Starshollow]

as a rule of the thumb you should add 10% to the purchase price in order to cover all purchase costs/fees.
These are divided as follows:

notary fees for the purchase contract: 1.5 %
taxes for purchasing real estate: 3.5 %
fees for real estate agent: 3.57%

If you buy directly from owner you can obviously forget about the real estate agent's fees.

Cheerio

[TalkMunichAdmin]

That is a scary add on percentage.  What type of deposit do you think would be required?
Please don't tell me something above 30% 

[Starshollow]

well, it depends.....
- for employees with an unlimited work contract and potentially at least 1-2 years experience in their job, LTV (loan to value ratio) of 100% is possible in Germany if the person's or family budget show that they can sustain the costs from interest and return of the principal (at least 1% per year).  Of course the interest rate would be relatively high because of the higher default riks in such a case.

- self-employed/freelancer: yep, at least 20% downpayment on the mortgage are required, often rather 30%. PLUS the purchase costs. If you have a good standing with your bank and if the real estate is considered a bargain, you might get better conditions, but what I state above is the average rule.

This is all based on the assumption that you want to purchase the property for use by yourself. if you want to buy property rather as an investment it will all depend on the real value of the property (as valued by the bank) in relationship to the rental income. If you generate a net rental income of >7%, financing up to 90% is possible still..

Oh, and btw: whenever you see published interest rate for mortgages with very low rates: usually they are based on 60% LTV only. A "normal" mortgage from our point of view will never even get close to these low rates...

having said that: of course now is an excellent time for Expats and foreign investors to buy property here. REal estate prices are stable (with good perspectives in the larger Munich area for continous albeit slow increase in value) while interest rates are near an alltime low. I have several clients from UK and Ireland who bought property in Germany through my services as mortgage broker and thus now find them in a better situation than many others in the UK/Ireland, because the German property kept its value or even increased it (plus in the case of UK investors the exchange rate from GBP to EURO turned favourably for EURO investments) while the local property markets in the UK or Ireland took a nosedive...

Cheerio

[TalkMunichAdmin]

That is great advice Starshollow.  Thanks.
Do you offer mortgage broker services?  Maybe some of our forum members might be interested in your services.

[Starshollow]

Yes, that is one of the services I am specialized in. As well for Expats/German residents as for foreign investors.

Cheerio

[Peter]

Is now really the time to think about buying a house?
Call me a sceptic, but I think the housing market here is so slow to respond that maybe a dip might still happen?  Is it not possible?  Should we not hang on a little longer to see what happens?  I am no expert, just see no reason to buy right now.  Correct me if I am wrong because I am not knowledgeable in these areas, just a casual and sceptical observer.

[Starshollow]

The real estate market in Germany, especially residential real estate, is totally different than in the UK, Ireland or USA. On one hand you can never expect such dramatic increases in value like in the other named above countries, on the other hand it is also much more stable. Investment anywhere in the larger Munich area (including Freising, Landshut etc) makes currently a lot of sense in a professional opinion. Due to the long term and unbroken trend of people moving towards our area here (estiamted increase in population for Munich and surrounding counties just through migration is 2-3 % over the next 10 years) and the slow reaction on the building side of the real estate business, you can not loose in value at all over the forseeable future (just check the rental ads and go for the fun of it to an open "visiting" time from any broker and you'll see how many people line up to find a decent place).
On the downside there are the costs for such an investment (up to 10%, see far above), but a good investment in a solid private equity, hedge or ship found costs you normally also 5-6% anyway. Appreciation will maybe be only 3-6 % p.a. but it is save money, especially in case of more inflationary times coming up.
If you do not want to bind yourself to one property, there are some solid and well structures investment funds where you can participate at the real estate market for lower entrance money...

Cheerio


P.S.: what I have written above is true mainly for Munich area. There are some other good areas in Germany, too, but also many where I would definetly not recommend to invest.

[TalkMunichAdmin]

Another angle to look at is what you are buying the property for.  If I were to buy now I would be buying a home not a financial investment.  So Peter that is another consideration you need to take into account.  Having purchased in the UK, I admit I made a tidy profit over a short space of time, but after a while you need to decide if you are after profit or stability and a place to call home.
As Starshallow said, there are other geographical places to invest in property for higher returns if you prefer a little risk.

[bigwig]

From a practicial perspecitve however, who will lend you the money to buy a property in a foreign country?  In addition you need to factor in the travel expenses as you set up the place to be habitable and then the fees to pay back the mortgage, interest, agent fees if you plan to sublet and need an agent to do this for you.  There are lots of reasons not to bother with a foreign property.

[Starshollow]

who will lend you the money to buy a property in a foreign country?

well, it all depends on the downpayment you can offer. German banks will offer usually around 50-60% of a property's value as a mortgage to investors from abroad. If the yield is very good, it can even go higher, but 70% is usually the max. and then only for properties worth > 1 million EURO and yield of >7 - 8 %

But you can easily buy property in Berlin for, say, 200.000 EUR if you can put down around 80.000 to 100.000 of your money.

Cheerio

[Simon]

Don't know abut anyone else but I am feeling a little bit inadequate with these huge deposits.  I am not sure I now anyone personally who has 80K saved up in their bank account (and I have a decent job too).  I guess some of us are not financially minded or talented in this area.  I really need to learn more about this stuff.

[Starshollow]

Simon: you are a German resident, for you different rules apply. If you are an employee, you can actually get much higher LTVs than those shown above. If you are a freelancer/self-employed person, well then it depends on your income during the last 3 years to see how much you can swing mortgage wise. If you or anyone want to know how much EUR worth a property he/she can afford in Munich area, I just need the following info (by Email would be best):
1. average monthly income gross or net for the last three years
2. how much downpayment can you afford
3. how many people have to live from/with your income
Based on this I can tell you quite exactly how much the average bank would be loaning out to you as mortgage and thus you'll know what property prices you could afford.

Cheerio
 

[Boomboom]

That is good to know that it is flexible for expats here.  One concern I have is the economic downturn and not how it affects the property market bt more so how it affects my job.  I would be very worried about being tied into a mortgage when I am not sure if my jobis stable or not.  The risk is that expats here, if they lose their job may find it difficult to find another one.
I just had a thought, is it common and possible to take out insurance in case of unexpected job loss?

[Simon]

I don't mind writing my salary on here.  If you are comfortable with giving a public quote, then I can give you the details on this thread.  Just think it might be informative for other people to see what the amount might be.  On the other hand if you want it private then that is fine as well.