German mortgages

Getting a mortgage in Germany

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If you're looking to buy German property, learn about the quirks of German mortgages and get some special tips for foreigners before buying your dream property abroad.

If you're drawn to property for sale in Germany, you'll find no restrictions on foreigners buying German property or getting a German mortgage, although the maximum amount you can borrow is increased if you are an official resident in Germany.

LoanLink, a mortgage broker specialized in loans for non-native property buyers in Germany, gives advice on the best course of action in this stable German property and mortgage market, which is combined with historically low interest rates.

Is now a good time to buy property in Germany?

Since the rebuilding of Germany after World War II, political and economic policies have strongly favoured renting over buying German property. The result has been profoundly flat home prices over much of the last 40 years.

However, with the current fall in mortgage rates – particularly influenced by a negative Euribor – and a healthy influx of political refugees, German home prices have been rising significantly. Indeed, in November 2017 the Bundesbank warned that house prices were 15-30% higher than they should be in Germany - with prices driven by cheap credit and low interest rates.

The report claimed that house prices went up by 5.6% in 2017, with increases in all bar a couple of counties and prices surging beyond traditional cities right out to rural areas. 

The primary buyers of German homes are local real estate investors – but there is plenty of room for foreign buyers, especially if the buyer intends to lease the property out for at least part of the year. Read about how to buy a property in Germany and where to live in Germany.

While Germany doesn't anticipate Brexit having too much effect on the economy or the ability of foreigners to purchase real estate, some uncertainty remains as the UK continues its EU withdrawal process.. That said,  the decline of the pound against the euro and German bankers’ proclivity for being conservative may create additional challenges for some UK residents trying to obtain a German mortgage.

How much can you borrow in Germany?

There are no restrictions on foreigners purchasing German real estate, regardless of whether or not their country of origin is a part of the European Union (EU).

The maximum amount you can borrow, however, is dependent on your residency status. Residents of Germany can borrow up to 80% of the assessed value of the property whereas non-residents are limited to approximately 55–60% of the assessed value.

Borrowers must also have an annual income in excess of €20,000. Under no circumstances can your monthly mortgage payments exceed 35% of your monthly income.


LoanLink is a pioneer in mortgage brokerage for non-native property buyers in Germany. Their English-speaking mortgage experts will recommend the best option tailored to your individual needs. And the best part? Their service is 100% free of charge, because they get paid by the lender. 

Mortgage calculators

Online mortgage calculators for Germany can help you determine how much you can borrow and estimate your monthly rate:

Cost of getting a German mortgage

Combing the low default rate on German mortgages with historically low Euribor rates has led German mortgage rates to be among the lowest in the world, with current average mortgage interest rates at some 1.85% per year, based on data from Statista. Bank origination fees are typically 1–2% of the total loan amount. If the property is valued at more than €500,000 then the buyer must pay for a property assessment, which typically costs around €300–600.

Upon signing the deed, fees will be due:

  • the notary’s fees and registrations fees at around 1.5% of the assessed property value,
  • the real estate agent’s fees ranging 3%-6% of the sale price. In Germany, buyers often pay estate agent fees (or split them with the sellers) – though this is subject to negotiation.

Thereafter the buyer will have up to four weeks to pay the real estate transfer tax, which ranges from 3.5–6.5% of the value of the property, depending on the state where you are buying.

Mortgages in Germany

Tax deductions for German mortgages

The interest on German mortgage for owner-occupied properties is not tax-deductible. However, if you rent your property in Germany or opt for a buy-to-let investment, any expense incurred for generating your rental income can be offset against your taxable rental income, including mortgage expense, maintenance, repairs and improvements. The only caveat with improvements is that if the expense is greater than 15% of the property value, the expense must be added to the depreciation allowable. The standard depreciation for rental properties is 2% over 50 years, or 3% for the first eight years if the house is newly built. Rental interest is taxed at the standard progressive income tax rates, as seen below.

German income tax rates 2018

 Individual                        Married                           Nominal rate                     
 €9,001–54,949  €18,001–109,898       14%
 €54,950–260,532        €109,899–521,064  42%
 €260,533+  €521,065  45%  

 

After rental income tax is calculated, a 5.5% solidarity surcharge is placed on the levied tax.

In addition, foreign property owners will be subject to capital gains tax if the property is held less than 10 years. The capital gains are added to the taxpayer’s annual income in the year the property is sold. Hence, if you sell your property after nine years and show a gain of €60,000 as an individual, that amount will be subject to a 42% tax rate. However, if you hold your property for 10 or more years, any capital gains is not counted as taxable income.

Requirements for a German mortgage

The mortgage application in Germany is straight forward, but the level of scrutiny of the applicant’s financial and other records can be daunting.

The documents you will need to provide – translated in to German – include:

  •         German self-disclosure (Selbstauskunft) questionnaire;
  •         property assessment;
  •         proof of employment (2–12 months of pay slips);
  •         self-employed individuals must provide additional proofs of income and net worth including two years of balance sheets, business and economic evaluation,              and prior year’s tax returns;
  •         latest tax returns;
  •         documentation of rental income (if the property has been previously leased out);
  •         proof of available equity
  •         extract from the Land Register for the previous six weeks.

In addition, foreign buyers will need to provide copies of their passport and, in some cases, a residency permit.

How to apply for a German mortgage

The process of applying for a German mortgage is similar to elsewhere, with the notable difference being the substantial level of due diligence how the bank will review your financial status. Part of that due diligence process will require obtaining a Schufa report, which is the equivalent of obtaining a credit report. As a foreigner you may not have a Schufa record, in which case you may need to show proof of your credit worthiness from your home credit reporting agency.

The banks listed below are welcoming to foreign real estate buyers and in some cases may be able to offer translation services, although there are many German banks to choose from, including some which specialise in offering expat mortgages.

Some of the main German banks include:

  • Commerzbank – a leading commercial international bank with core market in Germany.
  • Deutsche Bank – one of the largest and most respected banks in Germany.
  • Postbank – one of Germany’s largest banks specialising in private customers.
  • Sparda-Bank a large retail bank which is part of the Cooperative Bank system.
Another option for expats is to consult a German mortgage broker who will compare the rates of multiple German lenders on your behalf. LoanLink offers mortgage advice in English and compares 400+ German banks, and Hypofriend, an independent digital mortgage platform, checks the rates for you every day.


Mortgages in Germany

Types of German mortgages

A common German mortgage is the fixed-interest loan. An interesting aspect of the German mortgage system is that it allows the borrower to set the terms for the rate of principle repayment (typically between 1% and 10% of the principle amount over the term of the loan), and whether to make additional principle-only payments (up to 10% of the outstanding amount). At the end of the loan term any outstanding principle must be paid in full either with cash or further financing.

Interest-only loans

Interest-only mortgages are offered in Germany and favoured by investors seeking rental or buy-to-let properties. During the term of the loan, only the interest portion is paid; the principle is due in full at the completion of the loan term. In Germany, it is possible for German residents to deduct the interest payments from their annual income taxes.

Building Society loans

Building Society mortgages are a hybrid of fixed-interest and interest-only loans. During course of the loan term, in addition to paying the loan interest, the borrower pays into an annuity which goes towards paying the principle balance when the loan term is reached.

Variable rate loans

Variable rate loans are keyed to the Euribor and adjusted every three months. Additional principle payments can be made quarterly as the loan’s rate is adjusted. If the borrower believes the Euribor rate plus the bank’s margin is going to rise above a certain amount, in Germany the variable rate loan can be converted into a fixed-rate loan.

German mortgage guarantees

One peculiarity of the German mortgage industry is the lack of mortgage guarantees. This makes it incredibly difficult to get a mortgage in Germany in certain situations, for example:

  • if your credit is subprime;
  • if you have less than five years until retirement;
  • if you do not have the available cash to cover the down payment and closing costs; 
  • if your current and past income cannot be verified as being above the bank’s threshold.


Instead individuals may, if they or their bank desires it, purchase private mortgage default insurance from their bank or a private insurance company.

Other peculiarities of German mortgages

The German government offers special subsidies for individuals living in and paying taxes in Germany. Two of the most important are the Riester Pension Program (available to anyone who is legally covered by the German statutory pension program) and the Kreditanstalt für Wiederaufbau Bank Home Ownership Program (KfW).

The pension program may provide individuals certain pension subsidies in the form of paying for some of the mortgage costs or providing tax incentives for purchasing used real estate.

The KfW program can offer loans of up to €50,000 for people building new-build homes or purchasing existing properties. . The program can be used in conjunction with a mortgage bank’s products and often comes with a lower rate of interest than the bank’s mortgage.

 

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