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Rising construction costs and higher interest rates

If you want to realize your dream of owning your own house, you have to shoulder another double burden in addition to the already high real estate prices. It’s not just the construction costs that continue to rise, the interest rates for real estate financing have also risen significantly since the beginning of the year. If construction financing suddenly becomes a problem child, many home builders have to refrain from buying real estate for the time being. In this article, you can read about the options available to reduce financing costs.

Building interest has more than doubled since the beginning of the year

Interest rates for ten-year loans have more than doubled since the beginning of the year, from an average of 1 percent to 2.6 percent at the beginning of May, according to figures from Germany’s largest broker for real estate loans, Interhyp. Financing banks usually grant the loan anyway. However, with the significantly higher interest rates, the risk of underestimating the calculation increases. Too high and tightly calculated monthly interest and repayment installments can quickly become fatal.

Many private buyers of houses or apartments are therefore interested in the possibilities of improving the financing conditions and making the dream of owning a property come true.

Use the parental home as security

Property seekers often grew up in their own home. Parents can support their children with their property without any gifts of money. The parental home should be paid off in full or at least half. Then it can serve the children as additional security for their own real estate financing and significantly improve the interest rate. Depending on the individual case, the interest burden can be reduced by up to 0.4 percent. With a loan amount of 400,000 euros, the monthly burden drops by 133 euros.

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However, the associated risks should not be underestimated. The parents do not become the borrower themselves. However, if the children are no longer able to service the loan and the money from the sale of the financed property is not sufficient, the parents are liable with their property in the worst case.

Alternatively, the parents can also take out a loan themselves and mortgage their property with a new and existing mortgage. The parents can then pass the money on to the children as a gift or as a private loan, which may be interest-free.

Real estate purchase thanks to inheritance or donation

It is estimated that every fourth person finances their own property with the help of an inheritance or a gift. Experts warn, however, of increasing social problems if the parents’ bank balance ultimately decides who can still afford to own a home or not. Demands on politicians are getting louder and louder in order to make property purchases in Germany more affordable in the future. Above all, this includes making the interest costs for owner-occupiers tax-deductible and reducing the real estate transfer tax via tax exemptions. It remains to be seen whether politics will take action.

Do you need advice on questions relating to real estate and property law? We are experienced lawyers in the field of real estate law and look forward to hearing from you.

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