Many people in Germany still have misgivings about buying a home. Being strapped to a loan, tied to a property, burdened with major capital expenditures, and shouldering more responsibility – for more as any second Germans (52.4 percent of the population) it seems too daunting a proposition, and so they keep renting. Yet these assumptions are disproved by a number of surveys and analyses. While renting may look cheaper than buying at first glance, it simply is not.
Every year, the Cologne-based IW German Economic Institute compiles a survey on behalf of Accentro to find out what is more rewarding for people. Does is make sense and save you money to buy property, or is it more prudent to rent? The outcome is unambiguous. Like previous issues, the 2017 Housing Cost Report shows that going for homeownership remains more affordable than renting. For Germany as a whole, the average cost savings of home buyers over tenants are about 33 percent. Naturally, the savings potential varies from one region to the next because of the differences in supply and demand nationwide, the same being true for housing rents and prices.
The chances of owner-occupiers to save money through homeownership are greatest in Hamburg according to the latest analysis. The cost advantage in that city is currently at 40 percent, followed closely by 37 percent in Frankfurt am Main, and by 36 percent in Berlin. By contrast, the cities with the lowest savings potential for home buyers are Stuttgart (23 percent) and Munich (24 percent), but even here, owners can save up to a quarter of their housing costs if they buy rather than keep renting.
Taking Advantage of the Low-Interest Cycle
Of course the effects of the ongoing low-interest cycle are reflected in these surveys. Anyone taking out a bank loan to buy property for owner-occupancy can arguably expect to benefit from historically low interest rates. According to calculations by the IW Economic Institute, it is possible for buyers of an average flat to repay their loans within 35 years, and to do so without being any more burdened than a comparable tenant. The survey does take ongoing expenses for debt-financed owner-occupied homes into accounts, meaning interest, repayment, and maintenance costs, among other things.
Follow-up Financing a Threat?
It also pays to look at the situation ten years after the acquisition of a home. At the end of the ten-year period, it is common practice for German home-buyers to renegotiate their loans. Homeownership sceptics keep warning about the “rude awakening” in store for homeowners at this point. But the analysis concludes that even with a 3.5-percent interest on follow-up financing arrangements, 97 percent of the buyers are no more strained than tenants, and 93 percent are still better off than at a follow-up interest rate of 4.5 percent.
Arguably, the question what is wiser, to rent or to buy, is a foregone conclusion. So next time the subject comes up, try and remember the above arguments, and let the figures speak for themselves.