Buying property in Munich and mortgage advice

Hi,

This may seem like a very big topic, but for now I am looking for some general advice about how to buy a flat/house in Germany (in particular in Munich).

I will be moving to Munich in august, and to begin with I'll be sharing rented accommodation. After several months, and provided I can find a reasonable place I would like to buy. Can anyone give me advice on how mortgages work in Germany? I am interested in taking out a full mortgage that will cover everything- is this possible? How is the mortgage based on a yearly wage i.e. can you take out a mortgage which is 6 times your yearly wage?
Can anyone give any other advice in general on buying property in Germany?

Also something slight different- can anyone recommend German Language Schools in Munich?

Thanks.

Advertisement link: Homeproviders Germany - English-speaking estate agents

Hi Derry, welcome to Toytown.

A few people have had similar questions to yours, so the topic has been discussed before.

http://www.toytowngermany.com/search/?q=mortgage

Similarly, you can use the Search top right to look for language course recommendations.

In the meantime, good luck.

Hi Guy,

Thanks for the links. I've just been reading a few of the other threads actually- it seems obtaining a 100% mortgage with no down payment is unheard of in Germany. Quite different to the situation back in the UK. In fact, a friend of mine has just bought a flat in Amsterdam without any down payment and managed to get a mortgage that covers all his costs. I was hoping for something similar in Munich, since I'm looking to stay for several years. Germany seems quite tricky for first time buyers ( and single) in their late 20s though. Perhaps I should stop slagging off the UK housing market so much...

Cheers,
Derry.

Double-edged sword. Mortgages are easier and cheaper (relative to base rate of the currency) to get in the UK, but this just helps fuel the rocketing prices.

But the advice is pretty much - don't worry about buying here 'cos the prices never move much anyway! Even if they do start moving it will be slow. You are not gonna see all that 20% per annum stuff, so would be pretty hard to miss the boat. Just rent until you have a decent deposit. Then keep renting!

The market in Germany is so completely different to that in the UK, you should really consider researching it more before you decide to buy.. the English mentality that you're wasting money unless you buy a place could get you bankrupted over here.. if you got a 100% loan here for a place, you would almost definitely be paying more in interest per year than you would if you just rented.. anyway, this thread should be merged cause there is someone from England asking these exact same questions every month..

Yes it seems that even my past 2 years of living in Brussels have not deminished my English mentality to wanting to buy! Still, it would be good to hear from people who have actually done it. I'll be wrking further out of town from the Munich centre (Ottobrunn) so perhaps to buy somewhere in this area would be better/easiier...

I am sure this has been thoroughly discussed on previous threads, but keep in mind that if you do sell within 10 years and get any paper gains, you'll owe tax on your profits. The new inheritance tax rates are also awful. Plus, there is the approx. 7-8% costs additional to the sales price in notary and other fees.

As JE says, it's just not worth it. Maybe if you'll be here 30 years, or a bout of mega inflation descends upon this Teutonic land.

Yes indeed, you have to live 10 years in a property before
you are exempt from paying tax on the ostensible gain.
After 10 years here it's clear why the house/flat to buy
game is low-key.
I know a pair with an income of EUR 72k who would not
dream of buying.
Another guy I know runs a good going business with
over 50 employees - he is quite happy to rent.
(These are all Germans).
There is no great benefit in buy to let either - unless
you are using the property to provide retirement income
(there are special tax rules over this).

Thanks Jermeyhay. It seems"that the general theme here is: "don't buy!" To be fair though, if my intention is to stay for at least 5-10 years (too early to decide, but if I like Munich I may want to settle for some time there) then may be worth investing. Then 'if' the wife and kids comes into the picture, it may prove to be worthwhile in buying. Buying with the intention to sell after say 3 years does not see like a good thing to do in Germany.

It's my intention that if all goes well, then Munich seems like the kind of town where I could spend many years in (perhaps at least 3-5 years).

My question then would be: is it worth buying a flat as opposed to just renting somewhere for this duration? I thought that if say after 5 years I decided to move then I could always rent the apartment out. Can anyone recommend any good mortgage advisers/lenders?

My crystal ball has a crack at the moment. I’ll let you know when I get it fixed.

In my opinion, it is not worth it. Why are you so intent on buying anyway? Who knows what will happen in 5 years, but if it's anything like the past, if you rent it out you will not get anywhere near the amount of money you'd have if you'd just invested the cash. When house prices/rents go up, buying to rent can make sense. That doesn't happen here. The place I live in would cost 300k to buy including costs. My landlord gets 800 a month from me (cold rent), so 9600 a year. That's a really crappy return on 300k, a decent investment might get you 10% over the long run, which is 30,000 per year. There are also very strong tenant's rights in Germany, so you have to be extra careful with your tenants. It's hard to kick them out, the courts tend to favour tenants over owners.

Well, it's not that I'm so intent, as if I weigh up all the options I may decide that buying is not for me anyway. The reason I like the idea of buying is that if I pay, say €800 a month in rent, then would it not be better to downgrade the standard of flat slightly, and pay this amount of money in mortgage repayments? That way, even if house prices don't rise at all (and provided they don't drop either), then would it not be better over the long-term to take this option as 5-10 years down the line I have my own place and not lost 5-10 years worth of money in rent. I could then sell off the property after this time too. This is all quite new to me, so I'm sorry if my comments may seem a little niave. I've never bought before, and I know if I was back in England then I would be eager to buy...but I won't be in England so perhaps I need to adapt my mentality!

sure, but buying to live in can make sense

EDIT Ok, I didn't read the posts above about it only being for 3-5 years and then renting out at first. Then maybe it isn't worth the hassle

If you get a mortgage, instead of losing 5-10 years worth of money in rent, you'll be losing 5-10 years of money to the interest that the bank is charging on your loan. You have to try to compare similar things, you say you want to downgrade and buy, but this doesn't make sense. Downgrade and rent, and save the extra money you would have paid for the expensive place and put it in the bank. In 5 - 10 years you'll be better off than if you bought (assuming house prices don't rise).

Using my example before, a 100% mortgage at 5% interest that cost 300k would mean your "throwing away" 15k a year on interest, without even making a dent on the capital. I'm only "throwing away" 9600 to rent. There are long term things to consider, for example rents going up could sway it for the buying side.. but also things like interest rates going up (and they're not coming down) sway it towards renting. Either way, right at the moment you're spending 5k more a year when buying.. put that 5k into a decent long term investment, and after 10 years you might have 70k at the end.

If you know you're staying 5-10 years then buying could make sense. But to be honest there's many more pressing issues to address when you first arrive, so rent for the first 12-18 months minimum. Gives you time to figure out if you'll be staying that many years (i.e. do you settle or not), check out suitable areas, learn the specific financial/builders/legal jargon etc. Then once you've checked out the options, if it feels right for you, do it. But buying immediately upon arrival would seem to have crossed over the line dividing 'brave' from 'rash' to me.

But if you still decide to buy now, can I interest you in our 2-room flat in Laim, just coming onto the market*?

*As of next week, available from early next year.

Thanks for the lowdown, though I'm not sure about the maths with this- i'm not that familiar with how mortgages work, but wouldn't a 5% interest rate mean paying 15K over the duration of the mortgage repayment? If so, would that equate to approximately 40-50€ per month extra over say 30 years using the above figures? Another alternative or something I've been told to check out is something called a BAUSPARKASSE. Apprently your employers can also contribute towards this or something?!

Actually, I think you're pretty accurate (MrD) with your comments, as I know it's not a good idea to 'strike when the iron's hot' and just to wait and check out the areas, the market, and so on. I think as you mentioned, 12-18 months seems like a feasible duration.

By the way (Guy), yes actually I may well be interested in the flat (Guy) or at least knowing more details, of course.

That's more than just a little naive.

As LeChamois said, this thinking is naive. Man, if I could get money from the bank and only pay 5% over 30 years, I'd get out a million now and just put it in a savings account. 5% interest rate means you're paying back 5% on the outstanding loan every year, so in the case of a 300k loan, you'll be paying 15k to the bank in interest per year. So it's not 40-50 euros a month, it's 1250 euros a month wasted in interest (well, not really wasted cause you have a place to live).

The Bausparvertrag is something that your employers will contribute a small amount to, and at the end you can get a cheap loan, but they normally take 7 years to do.. that means you have to wait 7 years before buying a house so it's too long term for your current plans.

I think it depends where you want to live as this will dictate how much you will need to borrow in order to purchase your flat. For example, if you want to live in Munich you are unlikely to find much for under 250k (3 room appt) but if you move outside you can get that for nearer 200k.

Get a mortgage for 200k and over 15 years you'll start paying around 700 per month in interest depending on the rate agreed (was aroundf 4% a year or so ago but probably has risen since). Your interest repayments will obviously decrease as time goes by if you chip away at the principal at the same time. So for an outlay of 900-1000 a month you could get yourself something for about 200k that after 15 years you may have paid off around 50k (900-1000k a month is around what I was paying in rent for a 2 room flat in central Munich). At that time you could then sell (which at present takes an awful lot longer here than anywhere else in Europe) in which case you have lived somewhere and "saved" 50k at the same time (ROI is low of course) or take out another loan and keep on paying it off. In that case within another 10-15 years the flat could be yours. You could also probably rent it out for an amount that would cover your payments as an alternative.

If you're wanting to live in Munich or live in a bigger flat oustide Munich the numbers will be higher of course and when all is said and done it is all relative to what your earnings are and what you can afford.

I think Hutcho has the pure economics of the idea pretty much spot on, but there's other factors that you may consider important such as eventually owning something here that could help your retirment plan or which you could pass on to your kids. It might make more sense to consider buying if you are thinking about living here long term. There's also the possibility that one day in the next 10 years the German market does take off and start to resemble markets in other EU countries, though somehow I doubt it given the German's attitude to saving, but you never know.

You can get 100% mortgages here - try ING Diba. What you won't get is a loan on top to cover all your fees. That will be the minimum required before any bank will loan the amount the property itself costs.

Lastly, I understand a Bauspar to be a cheap future loan effectively. You pay in today and as suits over X years and you get a measely 2% interest on your deposit. But when you need a loan in X years, you can get it at that same 2%. I am sure there's more to it than that but I think that's the general gist.

Just wanted to add that there are changes in the works with regards to taxation of inherited houses that you should consider if you intend to leave property to any heirs. They will be on the value of the property, and seem quite hefty, so consult a Steuerberator in advance. These taxes may also keep house prices from soaring in the future if you are looking at a home purchase from an ROI perspective.

If you got a place for 200k all in, that flat probably would have actually cost 180k + 20k costs. Rent on a 180k flat isn't normally 900-1000 euro a month, probably only 500 - 600 a month (we're considering cold costs here, because warm costs you have to pay anyway when you buy). If you rented and saved the few hundred difference in rent vs loan per month, you'd have the 50k you talk about and probably more.

As I said, I've looked at places around my area similar to my flat (Neuhausen, 3 room, 80qm + underground parking/cellar) and they seem to go for between 250 and 300k. Add 10% costs on top of that, and you have a average price of say 300k. Like I said in my last post, interest on 300k at 5% is 15k, but my cold rent is only 9600 euro per year.

I would like to own my own place, and I'm sure one day I will buy. When I do, and if things are like they are now, unfortunately I think it'll be a bad financial decision, but there is more to it than just money.

It's good to hear from someone who can speak from experience (thanks UncleJamal) Yes, I think that I do intend to be in Munich long-term. My office is based in Ottobrunn, so it would seem wise that I locate in South/South-East Munich, and like you said, further out I imagine would be that little bit cheaper.

The loan on top to cover all my fees would come in handy too, but while I'm looking around for somewhere I can also save. I don't know what the size of these fees would be. I understand there are notary fees, VAT, and so on, so seems like it could be in the order of tens of thousands. I'll try ING Diba anyway, and see what they have to say.

I see your point of view too (Hutcho), though the difference, as you pointed out can be reduced over the years, can it not? I mean, as I hope to progress in my career and my wages also increase, then there would be the added incentive of paying back the loan sooner (if possible) and so reducing the overall cost of the mortgage. That or I marry a lovely rich German girl to help out, which is an obvious choice for most of us it seems (could probably start a new thread for that...)

Derry- that strategy only works if the (after-tax and after-fee) return on the property you buy exceeds the (after-tax and after-fee) return on alternative asset classes (stock, investment-grade bonds, hard assets, etc.) over a long period of time. Recent history, simple arithmetic, and investor sentiment strongly suggest it won't, and on top of that real estate is in a much less liquid market than stocks or bonds, which means you may not be able to extract the full value of the property when you do decide to sell. Then there is the fact that capital gains on stocks held between one and ten years are tax-advantaged relative to real estate.

It doesn't matter how you do the maths, it still works out worse to buy. You say you'll get a better job and pay off more each month, but it doesn't matter. If you got a better job and rented, and then put the difference between the rent and the mortgage payments into a savings account you would be better off.

You seem really pretty set on buying a house/flat, and if that is what you want to do, go ahead. I'm only pointing out, that given the current situation, and the lack of evidence to prove it's going to change any time soon, that if you buy a house you are most likely making a bad financial decision.

Flats with 3 rooms where I live rent out for between 750 and 850 cold per month. Doesn't change the fact that the 200 difference per month stuck in a bank over 15 years might earn me a better return, I agree, but I could not rent a place for the numbers you put forward.

I've been reading, and I just want to say that this has been a really great thread and really educational.
After much reading, I understand the logic of Hutcho, and am inclined to follow his advice. Personally, I'm planning to continue renting, and if I want to invest in property, I'd do it somewhere else where the property prices are soaring -- Singapore, for example.

May I throw out a perhaps-stupid question to the guys here: since it's established that it's more advantageous to rent than to buy, (1) what's the motivation for the property owners themselves to rent out and not to sell? and (2) why did they own the property in the first place?

Did most of them inherit the place, and therefore, can make more money from renting it out compared to selling everything and putting the money in the bank? I'm still learning, thanks, guys.

Actually, I'm not so intent on buying, but just want to weigh up all the options and see what is best. The whole point of launching this discussion was to see if there's a clear consensus on 'buy vs not-to-buy', which so far is proving to be quite helpful. I think that if it is still worse to buy no matter how one does the maths, then nobody would do it; it must be based more so on an individual basis (of course). I agree with someone's recent comments though, perhaps it would be better to put money aside in savings, bonds and so on then to buy when enough capital has been raised.

I know that of course there is a gamble with buying, for better or for worse. I read an article in the Guardian this morning saying that house prices have trebled in the UK since 1997- who could have predicted this. Then again - and as LeChermois pointed out - noone has a crystal ball to envisage such things. I also read that 'specialists' are expecting a turn for the worse with the UK market, but that's not the first time such claims have been made...

I bought simply because I cannot save money to save my life. This has forced me to do so. Strange and totally flawed logic really, but I also love my flat and the area where I live which will be a nice place to bring up my son over the next 5-10 years. I wish I had the head that Hutcho does for these things because I think 10 years down the line I'd probably be better off, but sometimes it's not only about that. It's also about the intangibles - I now "own" a house (although I know all I really own is a mortgage) and I can do what I want with it. Daft really, but then it makes me feel good even if it isn't the most sensible of options. Of course, all it takes is another stock market crash for my investment to appear to be better than it may do to outsiders today.

Why8, where did you read property in Singapore is soaring? I've heard on the contrary. My father lives and owns a flat out there, and he bought his after prices were already rocketing and quite a few years ago. From what I understand, recently they have been quite stable and have more or less reached a plateau.

In partial answer to why someone would buy a house if its a financially bad decision ... at some point I'm going to buy a house here in Munich. I know it doesn't make financial sense, but I'm not doing it to make money. I'm doing it because I want to own and live in my own home, and that's regardless if there are better financial options out there.

But what I will seriously consider in the process is how to plan for the future financially - how much of my projected earnings will go towards this house, and how much will go towards other investments. Do I want a luxurious house that will require every penny I earn, or a more basic place that gives me the freedom to enjoy life, travel and save.

If you want to buy a house, don't just assume it makes financial sense here. Look at other investment options, the returns etc. Then ask yourself why you honestly want to buy - if its because it makes you feel good or safe, that might just be a valid reason for your decision. But don't fool yourself into thinking its the best financial decision. On the other hand, life isn't just about making good financial decisions!

Hi derry, have a look at the news. Rental prices, for instance, rose 35% over the 1st Half of 2007. Here's something from today's news.


Your father might be rich now. Either he doesn't know, or he's not telling. Either way, that's not a bad thing for you.

I think you (Dreamer) and UncleJamal have more or less hit the nail on the head there. Though of course if I can minimise mortgage repayments in anyway by saving first, playing with stocks to build capital, and so on, then I should also consider this. The idea of having my own place should provide stability that is probably needed at some point, and like it was said, it might not be the best financial decision, but it will provide me with something quite tangible that I can say is mine.

I agree that, unless you have the capital to buy a property without the need for a large mortgage, then there's little point in buying in a stagnant market.

However, imo the fundamentals for upward pressure on prices are growing...

Current

1. Munich is already 2nd largest airport in Germany, and plans afoot to build a second terminal and a second airport.
2. Strongest economy of any german city.
3. Center of german 'new' economy.
4. 7.8% population growth forecast 2003-2020.
5. Changing demographics (e.g. more single-person households).
6. Lots of "Munich is a great place to live" surveys.

Short-medium term

1. Changing saving/spending habits (I was sent stuff about credit cards today).
2. Property prices have been depressed for a long time so the market is not exactly overblown.
3. Infrastructure - expanding motorway network e.g. A96, A99, faster (Transrapid?) link to Airport, completion of Munich ring-road.
4. Booming world (hence german esp. Munich) economy and resulting pressure on work-force leading to immigration and investment.
5. Rising especially property-related equity in other mature (property-wise) EU countries leading to property investment abroad (e.g. in Munich)

Long-term

1. Commuting-time constraints
2. Liberalisation of EU trade services
3. Elevation above sea level

Hmmm...I think there may be something he's not telling me other than he's selling up! Singapore is quite an expensive place to live in any case, and you would have to put up with its annoyingly draconian laws! Thanks for the link in any case, that is indeed interesting.

If you are thinking of buying with a view to making the best finanical decision, then look at apartments in good locations in Munich not out in the suburbs. They will be easier to rent and sell at a later date. If you are thinking of a house to raise kids in, plenty of space and a big garden etc., then from what I understand of the market it will be much harder to re-sell at a later date as well as being very difficult to rent out.

Work out in your own mind what you are going for and how much you can afford. You can always start with a small well-located apartment that won't cripple you but gets you a place of your own. From what you've written I think that's what you have in mind.

As an example, we're renting out in the south-east of Munich and the apartment was empty for quite a while before we moved in, even though its fine. Find an apartment in a more popular location and you wouldn't have that danger. Not that it matter as long as you live in it yourself, but that does affect the resale value and suitability in terms of whether its a good investment decision.

Care to expand on this one?

Do you think all the Hollanders will be running up to Bayern in a few years time then?

Who knows. About 10 million (ca. 60%), of the Dutch live below sea level... And I believe this figure is growing.

They would never move to Germany - they wouldn't be able to bring themselves to do it.

I'd say it's an investment, just not in the financial sense. You're investing in your sense of belonging to a place, a sense of ownership of something tangible, and ultimately hopefully in your happiness.

The bigger question here is whether this investment (buying a property in Munich) is really a good ultimate investment in your happiness. For instance, if I consider carefully what Hutcho has been saying so far, I might decide that I'm ultimately more happy to earn more money and make a good financial decision rather than have this sense of belong/ownership. Or I could have the same priority as dreamer and still choose to buy anyway.

But I'd do it with both eyes firmly wide open, and acknowledging and accepting that I'm making a loss. I wouldn't do it by making excuses and defences that it's a good financial investment. Unless we're still arguing about that...

It's like whether it'd make sense for me to buy a car. It's certainly a bad financial investment for me (single guy living in city centre). But if I do it, it'd be an investment in my happiness -- perhaps I'd be able to bring friends out, perhaps it might hook me a girlfriend (okay, I'm just inviting jokes here by writing that) -- but I'd rather not defend it from a financial angle. Lots of people might seek to mitigate it by saying -- oh, it's not so expensive anyway, oh it's more expensive to rent etc -- but I'd rather be brutally honest and say: yes, I know it's a stupid financial decision, but I like it anyway. More than that (hopefully), I'd choose not to buy a car in the first place. The good news (for me, for now): I still have not bought one.

You have a point there UJ

Abstract but quite logical thinking if global climate change is anything to go by. Nevertheless, if these kind of situations ever do occur, I think we'll have more things to worry about other than mortgage repayments and high interest rates!

1430 lingfield
only a game
20k each way.

Exactly!

When you rent out a place, you can offset your loss (broadly speaking mortgage payments - rent income) against tax, so the government are effectively helping you pay off your mortgage. Of course, it's not all good - if you became unemployed for any length of time, you may find yourself forced to sell property that you don't live in yourself.

As to why they bought in the first place, many buy to rent, no doubt some inherit. Personally I just wanted to have my own place and do what I want with it. That's difficult to measure financially, and I figured that as it's an ideal flat for a couple, in a nice location, it wouldn't be difficult to either rent out or sell in the future. I'm about to find out whether I was right sooner than I expected.

Mugs game.

Sakhee's Secret in the July Cup at Newmarket on Sat. Don't forget that one now Flogger.

Does that mean you're going to sell soon?
Hope you'll share with us your experience. And also hope there'll be others who've bought and sold before here who will share their experiences. We sure could learn from others' experience, even if we never learn from our own.

just to add from my own experience ...i would love to buy my own place here but it's the inflexibility and other items already mentioned that prevent me from doing so.

my last attempt was 3 years ago where i whittled a builder down from EUR. 230k to EUR. 207k on a 72 sqm loft conversion in Thalkirchen. the mortgage together with all the extra costs (paying the hausmeister, sewage, rubbish collection, etc) and knowing that i wouldn't be able to rent it out for what i would be paying, i had to back out at the last minute ...think i totted it up to be circa 1300 euros per month which i certainly wouldn't have got in rent if my circumstances would have changed...