Better framework conditions when buying a property?

For many people who would like to own their own home, buying a property in the current situation seems unrealistic. Inflation as well as increased interest rates and construction costs make a property seem unaffordable. But were the conditions for buying a property really better in the past? 

A comparison of the current situation with the 1980s paints a different picture. Data from the Organization for Economic Cooperation and Development (OECD) shows that, from a long-term perspective, buying property is easier today than it was back then.

This is because the so-called affordability index, which the OECD calculates on the basis of real estate prices and income, has fallen in recent years. Only the rise in interest rates is influencing current market developments, which has caused prices to fall significantly in many regions.

Real estate prices then and now

For the layman, things look different at first glance. Property prices have risen by around 150 percent since 1980. However, if the rise in inflation is taken into account, real property prices have only risen by 15.5 percent. At the same time, however, real incomes grew by 41 percent. Wages have therefore risen more than property prices.
This has improved affordability.

Loans then and now

The rapid rise in financing interest rates to around 4 percent meant that prices and financing options no longer matched. The purchase price level corrected more slowly than interest rates rose. "While the average monthly installment before the rise in interest rates was 1166 euros, one year later it was already 1505 euros," explains Jörg Utecht, CEO of the mortgage service provider Interhyp, to tagesschau.de.

In the 1980s, according to Utecht, building interest rates for a ten-year fixed interest rate were 10
percent and higher. For a loan of 200,000 euros, the monthly charge was 2,000 euros. With financing over ten years, this adds up to interest costs of 172,000 euros. Today, with an interest rate of four percent, the installment would be 986 euros and the interest costs would be around 70,000 euros.

Sought-after locations

Nevertheless, for many, buying real estate feels more expensive today. According to Jochen Möbert, real estate expert at DB Research, this is due to the fact that real estate prices in sought-after regions have risen sharply in recent years. These are primarily metropolitan areas, where more people live today than in the 1980s. Due to the short supply and high demand, real estate is less affordable here, according to Möbert. Property seekers are therefore much more reliant on the brokerage skills of experienced estate agents.
It is worth making the financing limits transparent so that the estate agent can bring together the possibilities of prospective buyers and the ideas of sellers.

Major hurdles today

The ancillary purchase costs for the notary, land register entry or land transfer tax are higher today than in the 1980s. Whereas the land transfer tax was 2 percent for everyone in 1983, today it is up to 6.5 percent, depending on the federal state. In order to raise the equity share of 20 to 30 percent of the purchase price, more has to be saved. Reiner Braun, CEO of empirica ag, emphasizes that many young families are no longer able to "save up for the rapidly rising prices and land transfer taxes."

Changing life plans

Changes in consumer behavior also have a major influence, says Braun. "Families in the 1980s saved more than they do today, partly because they restricted themselves more." But fewer and fewer people want to do this. According to Interhyp's affordability study, 54% - 8% more than in the previous year - state that they do not want to restrict their quality of life to cover mortgage costs.

Would you like support in finding an affordable property and suitable financing? Please contact us. 

We will be happy to advise you and put you in touch with a neutral financial advisor.

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