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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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For members


Should you think about purchasing a buy-to-let property in Germany?

Buying property in Germany specifically to rent out has increased in popularity over the last few years - even as overall home ownership remains low relative to the rest of Europe. So who should consider it here in Germany? We spoke to an expert.

Should you think about purchasing a buy-to-let property in Germany?

Buy-to-let properties in Germany come with many of the same pitfalls as buying a German property to live in yourself. For one, fees and taxes of around ten percent of the purchase price could dissuade plenty a buyer.

But according to Nick Mulder, CEO of Hypofriend, a mortgage broker specifically targeted to expats – there are four broad types of people who might want to have a look at the option.

They include people who might have cheaper rents in the city but simply cannot afford to buy the forever home they might want. As such, they may consider buying a small one – or one in a cheaper city – that they can rent out and use to supplement their income.

Other groups include people who intend to stay in Germany for at least ten years, people with incomes high enough to write off property depreciation against their taxes, and people looking to supplement their pensions with rental income.

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

What are the pros if I fall into one or more of these groups?

Mulder says one of the most important things for a buy-to-let purchase of a property in Germany is to be sure that you will hold it for at least 10 years.

That’s because once the 10-year clock runs out, you can sell it and pay no capital gains tax on it – even if the property isn’t your residence. In Germany, selling your main residence at no capital gain is possible after two years – but that option opens up with any property based in Germany you own after 10 years.

If it works, you can effectively claw back the high upfront fees and then some after ten years.

“This is unique globally,” says Mulder. “It can be very advantageous.”

That’s not the only advantage Germany seems to have over other countries. Another is the favourable financing terms. German mortgages tend to have the same terms and conditions for buy-to-let properties as they do for ones you buy as your own residence.

“This is uncommon in many countries,” says Mulder. Interest expense can also often be written off against taxes if you own a buy-to-let in Germany – something not available for people to do on their own residences.

The tax advantages can also be considerable, with recent tax changes meaning that some people will be able to deduct up to 40 percent of their German property’s value from their taxes in the first four to six years of owning it. Owners can deduct everything from the depreciation of the building’s value (but not the land) to energy-efficient retrofits.

In many cases, Mulder says the gains are still generally there for the taking if you move abroad in the meantime – provided the country of your new tax residence has a tax treaty with Germany. You just need to hold the German property for long enough to realise the tax advantages – to help offset the high upfront costs.

READ ALSO: Is it a good time to buy a home in Germany?

What are the cons?

Obviously, if you purchase a buy-to-let in Germany – you need to stay locked in for a while to make the high upfront fees – which include everything from land transfer tax to notary fees – worth it. House flipping after a few years doesn’t work here the same way as it might elsewhere – even for your own residence.

Maintenance can be an ongoing cost, which is why Mulder says they recommend that expat buyers buy up new buildings if possible.

Finally, with strong tenancy laws in Germany, rent is only likely to appreciate by two to three percent a year. This means the upside is largely taken when you eventually sell – not from rental income.

All that said, buy-to-let properties may make sense in Germany for certain types of medium to longer-term buyers – who can stick it out for a few years.

READ ALSO: What fees do you have to pay when buying a home in Germany?