Homeownership is more affordable today than at any other time during the past 25 years. That is the upshot of the latest survey the empirica research institute conducted on behalf of the Schwäbisch Hall building society. According to the survey findings, the debt burden for those buying property has significantly decreased between 1991 and 2015 – and this despite rising prices. The debt burden through homeownership dropped by 62 percent on average in the 30 cities examined. The debt burden was calculated as ratio of interest rates and repayments to household income. The findings refer to a benchmark condominium with a residential floor area of 80 square metres.
Even Munich – where prices rose 86 percent between 1991 and 2015 – experienced a decrease in debt burdens by roughly 50 percent over the same period of time. The slowest decline in debt burden was registered in Trier at 43 percent, whereas the fastest decline was recorded in the city of Minden at 78 percent.
The obvious reason for the drop in private household debt is the low level of interest rates in recent years. Specifically, the average costs of interest rates and repayments paid annually has decreased from 10 percent in 1991 to now 4.5 percent. As a result, more and more private households are able to afford to pay mortgage loans.
Buying Is Cheaper than Renting
The lower debt load has made it more affordable in the long to buy than to rent your home in Germany. This is the conclusion of the ACCENTRO-IW Housing Cost Report 2017, published in July of this year. It suggests that buying residential property in Germany is 33 percent cheaper on average than renting.
Yet despite the historically high affordability of residential property, Germany’s homeownership rate has stagnated at 45 percent. For the main challenge that many German households face is not shouldering the annual debt burden but raising enough equity to make the down-payment necessary when buying property. For some time now, the real estate industry has therefore stepped up its call for a relief of property buyers, for instance by lowering the real estate transfer tax rate for them. Even the body politic has become aware of the issue lately: Ahead of the upcoming general elections, Christian Democrats and Liberals are demanding a real estate transfer tax waiver for owner-occupiers, while Christian Democrats and Social Democrats have both included in their election manifestos a pledge to boost the equity stake for families contemplating homeownership.