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RENTING

EXPLAINED: Why tenants in Germany could see bigger rent increases this year

It's no secret that the cost of living is going through the roof, and for a certain group of tenants, the impact on their monthly rents will be tangible. Here's what to know about inflation-linked rents - and what you can do about them.

A birds-eye view of Munich city centre.
A birds-eye view of Munich city centre. Photo: picture alliance/dpa | Sina Schuldt

What’s going on?

With the ongoing energy crisis and the war in Ukraine, the cost of living is increasing at a rate not seen in Germany for more than four decades. According to the latest estimates, inflation has hit 7.6 percent, reflecting huge rises in the price of property, fuel, food and other everyday expenses.

Recently, supermarkets such as Aldi and Edeka have announced several rounds of price hikes, with customers feeling the squeeze on commonly purchased items like butter and meat products. Energy costs are also rising rapidly, affecting not only the cost of heating and electricity but also the cost of other goods due to the impact of energy prices on German industry. 

At the same time, tenants are facing fierce competition for rental housing, with rents going up rapidly in many parts of the country. For a certain group of tenants who have agreed to so-called Indexmiete clauses, rapid and potentially unaffordable increases in rent are also expected. 

Speaking to Tagesschau on Monday, Jutta Hartmann of the German Tenants’ Association revealed that a number of people with this type of rental contract were seeking help and advice in the face of significant increases in their rent. 

It appears that clauses that previously seemed reasonable or beneficial have suddenly become untenable in light of exploding prices. 

READ ALSO: EXPLAINED: The hidden costs of renting in Germany

What is an Indexmiete clause? 

An Indexmiete clause stipulates that rents rise every year in line with inflation. This is a different way of calculating rent increases from the Mietspiegel, a system whereby landlords link their rents to the market rates in a specific area. 

Landlords using an Indexmiete clause will use the data in the Consumer Price Index (CPI) released by the German government to calculate the new rents each year. To do this, they’ll compare the current CPI – which lists the average cost of goods and services – to what it was in the same month the year before. The difference between the two values will then be used to determine how much the rent should increase, or even decrease. 

Statistik: Verbraucherpreisindex für Deutschland von März 2021 bis März 2022 | Statista

There are often some advantages to this, the main one being that if inflation is low but the housing market is volatile, rents for tenants may well go up by less each year than the rents of their neighbours. Another key advantage is that the landlord can only raise rents once per year and won’t be able to gain financially from doing modernisations or refurbishments that can sometimes be used as an excuse to drive up rents. 

With the Indexmiete, it’s also easier to understand and predict increases in rental costs.

However, if inflation rates are particularly high, this same type of contract can severely disadvantage tenants. That’s because there’s no cap on the amount that rent can increase in these circumstances – in the same way that there’s no cap on inflation.

The other downside for tenants is that landlords can use the Indexmiete clause to set the initial rent above other rents for similar properties in the area. That means that someone could start off paying more than others and then see their rent go up significantly each year. 

How many people pay index-linked rents?

Though there are no official estimates on this, the signs are that this type of contract is on the rise.

According to the Berlin Tenants’ Association, inflation-linked rents were “always a niche product” in the rental market, but the tide is beginning to turn. 

“The number of such tenancy agreements is on the rise, and especially recently,” Lukas Siebenkotten, president of the national Tenants’ Association, told Süddeutsche Zeitung. “We have feedback from tenants’ associations in places like Hamburg that up to half of all tenancy agreements being concluded at the moment are index-linked or graduated tenancy agreements.”

Though they are still in the minority compared to traditional contracts, an increasing number of landlords could choose to switch if the inflation rate stays at a high level. 

How do I know if my rent is linked to inflation?

If you’re on an Indexmiete, it’s likely you’ll already know about it as there will have been a clause included in your contract. At the very latest, it will be clear as soon as you get you first notification of an increase in rent, as this will likely make reference to the Consumer Price Index rather than to the rental costs of similar properties in the area. 

If you’re still unsure, ask a German-speaking friend or advisor from the Tenants’ Association to check over your contract to find out or send an email to your landlord or letting agent to clarify the situation. 

READ ALSO: Altbau vs Neubau: What’s the difference and which should I rent in Germany?

Can people on an Indexmiete challenge rent increases? 

According to the Tenants’ Association, it can be tricky to do so. 

“The tenant can only hope for goodwill on the part of the landlord – as a tenant you have no right to ward off the increase,” Hartmann told Tagesschau. “A last option would be to move out of the flat if it becomes too expensive. As a tenant, you are currently defenceless and at the mercy of the landlord.”

Nevertheless, it can be helpful to seek advice if you feel like the rent increase is higher than it should be – and it’s also important to remember that there may be other legal protections to fall back on.

A man hangs up his keys in a Berlin apartment

A man hangs up his keys in a Berlin apartment. Photo: picture alliance/dpa/dpa-Zentralbild | Kira Hofmann

One key example is a cap that states that rents must rise by no more than 20 percent over three years, which could be useful if inflation continues to rise. In Frankfurt am Main and other places were the rental market is competitive, this cap has been reduced to 15 percent.

The traffic-light coalition wants to reduce this still further to 11 percent nationwide, which would equate to an increase of less than four percent per year – well below the current inflation rate. 

There are also important rules that have to be followed in this type of contract: the landlord must inform the tenants in writing with at least one month’s notice if the rents are going up, and this can only be done at least a year after the move-in date. As mentioned, rents aren’t allowed to rise whenever prices go up, but are based on a comparison between, for example, the CPI in March 2022 and the CPI in March 2021.

That means that tenants shouldn’t be expected to bear the brunt of more than one increase over the course of a year.

READ ALSO: EXPLAINED: How to get a rent reduction for problems in your German flat

Should I accept an Indexmiete clause in my rental contract?

That all depends on the current economic environment and whether the rental property feels like good value to start with.

With the inflation rate the highest it’s been in more than 40 years, people with Indexmiete clauses in their contracts are likely to see dramatic hikes in rent over a relatively short period of time. 

However, it’s also important to note that rents can also go down slightly if the inflation rate drops once again.

In other words, deciding whether to accept a clause like this is partially a case of economic speculation – and you may well get it wrong. 

It’s worth noting that, if you’re already living in a property, the landlord cannot suddenly switch to the Indexmiete system without your consent.

If you haven’t yet moved in, you’re also within your rights to question the contract and ask for changes, though of course there’s no guarantee this will happen.

“I would recommend everyone to consider very carefully if they want to do an index-linked rent and if there is not the possibility to get a normal tenancy agreement,” tenants’ rights expert Hartmann told Tagesschau. 

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For members

MONEY

Why German bank customers could soon pay less for their account

A major German bank is set to scrap fees on large balances - and a number of others look set to follow. Here's why people in Germany may be paying less for their savings or current account in the near future.

Why German bank customers could soon pay less for their account

What’s going on? 

Interest rates have been at rock-bottom levels for years, making it much harder for people to get returns on their savings.

In recent years, many banks have even been levying what’s known as negative interest rates on customers. If interest normally incentivises people to save by helping them to grow their money, negative interest basically does the opposite.

If you have a certain amount of money in the bank, your bank will charge you negative interest via a deposit holding fee, which will usually be a certain percentage of your balance.

With N26, for example, balances of over €50,000 are subject to a 0.5 percent fee each year. For a balance of exactly €50,000, that equates to €250 in bank charges just for keeping your money there. 

Some banks even charge a deposit holding fee for balances as low as €5,000 or €10,000 in a current account. 

On Tuesday, ING Deutschland became the first bank to announce that it would be scrapping negative interest rates for the vast majority of its customers.

From July 1st, new customers of ING will be able to deposit up to €500,000 in their account without being charged for it, while existing customers will automatically have the fee-free amount raised to €500,000 from the current €50,000. 

Now, it seems a number of other German banks are planning similar moves. 

Why is ING Deutschland ending the holding fee?

Not entirely out of the goodness of its own heart – though that doesn’t stop it being good news for customers.

The European Central Bank (ECB) is set to make a decision on interest rates in the bloc this July, and most people expect that the bank is poised to increase interest rates from minus 0.5 percent to zero. 

Since banks have basically been passing on the ECB’s fees to their own customers, a hike in the ECB’s interest rate would spell the end of most negative interest-rate accounts in any case. But ING Deutschland said it wanted to pass on the positive interest rate trend to its customers even earlier.

READ ALSO: EXPLAINED: How to save money on your taxes in Germany

“With the increase in the fee-free allowance for credit balances on the current and extra accounts, the deposit fee is no longer applicable for 99.9 percent of our customers,” said Nick Jue, chief executive officer of ING in Germany. “We were one of the last banks to introduce a deposit holding fee and one of the first to virtually abolish it.”

He added that the bank had already kept its promise to abolish the holding fee for almost all customers before the European Central Bank made its decision.

Does this have anything to do with that court decision on bank charges?

That’s definitely a factor. According to a decision in Germany’s Federal Supreme Court last year, credit institutions have to obtain the consent of their customers when making changes to their fees and conditions.

That means that financial institutions have to ask for consent to current fees retrospectively if they don’t want hoards of people trying to claim their money back.

If a customer doesn’t consent to the fees, the bank will usually close that customer’s account.

Man signs a contract

A man in a suit fills in an official form. Photo: picture alliance/dpa/Pixabay | hnw-Gruppe

According to ING Deutschland, the scrapping of negative interest rates on balances up to €500,000 may help to sway those customers who have not yet agreed to the latest terms and conditions – including the deposit holding fee.

Anyone who agrees to the Ts&Cs will automatically be given the higher allowance as of July 1st.

“ING Deutschland expects that the increase in the allowances will convince in particular those customers who have not yet agreed to the General Terms and Conditions including the holding fee, and that the bank will thus terminate fewer customers than last planned,” ING said in a press release. 

READ ALSO:

What other banks are planning to do this?

According to reports in Bild and Bialo, the other banks planning on ending negative interest rates (or raising the threshold for fee-free balances like ING Deutschland has done) include:

  • Deutsche Bank
  • Commerzbank
  • Deutsche Apotheker- und Ärztebank (Apobank)
  • Dortmunder Volksbank
  • Hamburger Sparkasse (Haspa
  • Frankfurter Sparkasse
  • Frankfurter Volksbank
  • Mittelbrandenburgische Sparkasse
  • Nassauische Sparkasse (Naspa)
  • Ostsächsische Sparkasse Dresden
  • Sparda-Bank München
  • Sparda-Bank Südwest
  • Sparda-Bank West
  • Sparkasse Hannover
  • Sparkasse Pforzheim Calw
  • Volksbank Stuttgart

What does this mean for my savings?

There’s good news and bad news.

The good news is that, from July, you’ll no longer have to pay exorbitant charges just to store your money in a safe place – and you won’t be penalised for saving more. The bad news, on the other hand, is that low interest rates aren’t going away anytime soon.

So while you won’t be losing money hand over fist, you won’t be earning much of a return on your savings either.

Banks in Frankfurt

Skyscrapers in the financial district of Frankfurt am Main. Photo: picture alliance/dpa/dpa-Zentralbild | Fernando Gutierrez-Juarez

“If the interest rate environment continues to develop positively, we will also let our customers participate in this development,” said ING Deutschland’s Nick Jue. “However, the low-interest phase will continue for the time being and broadly diversified investments will remain important.”

Getting a securities account where your money is invested is one way to try and grow your savings, as is investing in property.

Of course, people with mortgages and other loans benefit from the low interest rates – which could be why the German property market is currently booming. 

READ ALSO: Five ways Germany’s soaring inflation could affect your life

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