Never in the last 70 years has borrowing money to buy a house in Germany been cheaper, the IWD market research institute claims. Whereas a decade ago home buyers had to pay on average 5.04 percent interest on a mortgage, last year interest levels had dropped to 1.67 percent.
But these “heavenly” borrowing conditions have also fuelled a sharp rise in house prices.
The IWD has therefore taken it upon itself to compare renting against buying in 401 different districts across the country. After analyzing developments in the rental and real estate markets, additional costs involved in a house purchase as well as interest rates, the research centre came to the conclusion that now is a very good time to buy.
Back in 2008 renters were paying about a third less than homeowners for their monthly living costs. But that trend has now completely switched. Homeowners are now the ones paying a third less than the average rental price for a similar apartment.
If you want to live inexpensively in large German cities for a longer period of time, a consideration could be to purchase a home, as the infographic below shows.
For instance, if you are based in the western city of Cologne and buy a home on a financing term of 35 years, you have a financial advantage of 28.5 percent over renting.
On the whole, long-term financing is worthwhile for most other large German cities, the IWD finds – the only exception being Munich. In the Bavarian metropolis, the housing market is already so saturated that renting is significantly cheaper than buying.
So if the advantages of buying a home are obvious, why aren’t residents in Germany jumping on the bandwagon?
Homeownership stands at just under 45 percent in Deutschland.
One reason, the IWD points out, is that the advantages in terms of costs for property ownership are much higher in rural areas than in big cities like Munich or Stuttgart. As regional differences exist, it isn't better value to purchase a home to the same extent everywhere.
Moreover, since the real estate crisis which also affected the United States and other European countries about ten years ago, it has become increasingly difficult to finance one’s own home.
Banks are now demanding a higher equity ratio while purchase prices are rising steadily. In some cases, these prices are simply too high for potential homeowners to afford.