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What to know about mortgages and fees when buying property in Germany

When buying a property in Germany there are a few key differences to other countries regarding mortgages and fees. We asked one expert to walk us through some of what you can expect - especially as a foreigner in Germany.

Property prices German
A row of houses in Munster, Germany. Photo: picture alliance/dpa/LBS West | LBS West

Interest rates might be up on the back of rising inflation, but prices in Germany are down by anywhere between 3 and 10 percent lately, depending on the area and type of property.

According to Peter Kleinwächter, an experienced mortgage broker and senior consultant with MLP Berlin, that may give certain types of buyers a chance to snag a place at a better price. Speaking on The Local’s Germany in Focus podcast, released February 3rd, Kleinwächter said that buyers are in a good position right now, especially if they negotiate directly with a developer.

But they’ll probably have to act quickly, as he expects interest rates to eventually come down and prices to go back up, especially with German governments missing housebuilding targets and a continuing shortage of affordable homes.

The true cost of buying a home in Germany is hidden at first though, with certain processes and fees being applicable that people from abroad may not be used to. In addition, non-citizens may have a harder time getting a mortgage.

READ ALSO: Ask an expert: Is now a good time to buy property in Germany?

Who can get a mortgage?

Legally speaking, there’s no rule on the books saying a non-citizen resident in Germany can’t get a mortgage.

In practice though, many banks will not lend to non-EU citizens who are resident in Germany on temporary visas – even the EU Blue Card for skilled workers. Someone who is an EU citizen typically has no issues with banks based on immigration status at least. In principle, all banks are also open to non-EU citizens who have permanent residency in Germany.

Some banks though, including Kleinwächter’s own, not only work with EU Blue Card holders in Germany, but specialise in those cases.

Houses in Leipzig

Houses in Leipzig, a current “trend city” in Germany. Photo: picture alliance/dpa | Jan Woitas

Kleinwächter’s advice is to not get discouraged if a bank turns you down and to shop around for one that’s familiar in dealing with foreigners. Many conventional banks may have people who speak English, but not to the necessary level. Others simply won’t understand how much the homebuying process in Germany may differ from back home.

“You need someone holding you hand during the whole process, not only the application process when finding the right bank, but also when it comes to applying for the loan because of all the paperwork,” says Kleinwächter.

READ ALSO: What experts say will happen to the German housing market in 2023

How much money do I need set aside?

Kleinwächter says the average deposit required for a mortgage has increased significantly in the last two years, going up around €30,000 to a current average of €150,000 for a typical German property.

Kleinwächter says once you have your deposit together, you can get a loan approval that you can bring with you to home viewings.

“That’s show that you’re serious,” he says.

Once you decide on a place, all German property transactions have to go through a notary, acting as neutral for both parties. Kleinwächter describes this as “when the money counter starts.”

Both buyer and seller will typically sit through a long appointment with the notary while he or she reads out the entire contract and makes sure everyone understands it. Internationals not fluent enough in German to discuss property law may be told to bring along an accredited interpreter. Depending on the length of the appointment, the interpreter’s bill could also run up to several hundred euros.

The notary themselves will set you back up to two percent of the purchase price, with the fee declining the higher the purchase price is and the lower the loan amount.

The fees don’t end there.

You may also have to pay a real estate agent fee – basically the agent’s commission – with the buyer and seller splitting it and shelling out up to 3.57 percent each.

However, there is one way to get by this fee, if you’re willing to buy a new place.

“If you buy something from a developer, you usually don’t have to pay any property agent fee because you’re buying directly from the producer,” says Kleinwächter.

Other types of property, like Kapitalanlagen – or buy-to-let investment properties – usually dispense with this commission, while other real estate agents may have a few commission-free properties on their portfolio to make them more attractive to buyers. 

The land transfer tax though, is not optional.

Paid by the buyer to the federal state government of where the property is located, the applicable federal state government will likely send you a letter soon after you sign the agreement, asking you to pay the tax within a short time. Amounts range from 3.5 percent of the purchase price in Bavaria to 6 percent in Berlin and 6.5 percent in Brandenburg.

Finally, once you take possession of the new property, you will get a letter from your district, asking you to pay a fee to be added to the land register (Grundbuch), proving your right to the property. That fee typically runs several hundred euros.

READ ALSO: EXPLAINED: What you need to know about buying property in Germany

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Over a million German households spend half of their income on rent

Over 15 percent of people in the country are spending at least 40 percent of their income on rent, according to the federal statistics agency.

Over a million German households spend half of their income on rent

Rent is taking up an increasing share of the average German paycheck, according to the Federal Statistics Office (Destatis).

The agency found that 3.1 million households in the country are spending at least 40 percent of their pay on rent, with about 1.5 million spending more than half their pay on cold rents. Cold rents in Germany typical don’t include utilities like heat and electricity, so total housing costs are even higher.

The average gross rent per square metre in Germany sat at €8.70 as of the end of 2022, although it is much higher in places like Berlin, Frankfurt – and especially Munich.

The increasing rent burden is particularly high on single-person households, people in larger German cities and people who moved into their current apartments after 2019. 

People living in smaller German cities are still paying, on average, much less than people in larger cities for rent. Inhabitants of cities of 20,000 people or less are spending around 26 percent of their income on rent, compared to the 27 to 29 percent seen in cities of over 100,000 people.

The burden on single people is particularly clear. They spend around a full third of their incomes on cold rents, as a nationwide average. That’s compared to couples or two-person households, whose rent equates to about a quarter of their income. 

For those who have newer rental contracts, the news is a bit more dire still – no matter where you live in the country.

Those who signed in 2019 or later are paying an average of €1.10 per square metre more than those who signed before. In larger cities, that difference is up to €1.40 per square metre, with people who moved in after 2019 in those cities paying an average of €11.00 per square metre on cold rent.

READ ALSO: Why Germany wants families to move to the countryside