Once you decide to invest in real estate, taking on a mortgage can be one of the next steps you will face. For many buyers, opting for a mortgage is often obligatory when personal capital is not enough. If this should be the case, it is always highly advisable to schedule wisely the mortgage structure and repayment scheme. Most of us understand what a mortgage is but describing it straightforwardly is difficult. Essentially, it is a sum of money advanced by the lender (e.g. bank) towards the price of an asset, property or development/renovation. The mortgage is reimbursed over an agreed timeframe (usually 10 – 20 years), together with added interest and supplementary costs.
Nevertheless, taking on a mortgage as non-resident is different from country to country, in particular after the 2008 global financial crisis. Obtaining a mortgage in Germany, and in particular in Berlin, it is not anymore difficult than in other countries in the world.
The German mortgage market, even before the financial crisis, has always been conservative by definition especially in comparison to the British, American or Dutch market. So what are the main things you need to know when approaching the mortgage market?
1) First of all, be ready to receive several inquisitorial questions on your financial situation. German lenders do asses not only the value of the asset that is going to be mortgaged. In fact, your financial situation is just as important as the property’s worth. People from other nationalities are not used to such in-depth proof requirements. in general, you will be asked at least to provide copies for these documents:
- Last 3 wage / salary pay slips
- Last 2 income tax certificates
- Last P60 certification
- Recommendation / Certified copy from your HR department
- Last 6-12 monthly balance sheets (especially if you are self-employed)
- Last three years’ annual accounts (especially if you are self-employed)
- Verification of equity
2) In relation to the equity verification, there is an important thing you need to keep in mind: banks and other financial institution usually do not grant the full value of a property and additional costs. In the Netherlands and the US, banks typically grant up to 110% of the property value. Instead in Germany residents can receive a sum corresponding up to the 80% of the total costs (including notary costs and brokers fee), while German mortgages for non-residents will be financed up to 60% of the final costs.
3) Germany has been always the strongest economy within the European Union and one of the strongest economies around the world. For to this reason, German mortgage rates are the lowest in the European Union. Also, banks offer very attractive loan terms. The average lending rate reported by the Deutsche Bundesbank is 1.5%. The average rate for non-residents is between 2.39% and 4.6%.
Finally, keep in mind that there are several type of mortgage and supporting programs available in Germany. Among others, typical kinds of mortgage are the Fixed Interest Loans structure (with capital & interest repayment) and Interest Only Loans structure (in German Zinszahlungsdarlehen). Typical supporting programs are the KfW (Kreditanstalt für Wiederaufbau) also called the Bank Home Ownership Programme and the Riester Pension Programme (Riester Rente).
