Change in the interest rate over the last 10 years The relationship between inflation and interest rates: Since 2021, inflation has increased significantly in the Eurozone. Annual inflation was 0.3% in 2020, rising to 2.6% in 2021. Inflation peaked at 10.6% in October 2022, then fell to 6.4% in 2023 and to 1.9% by September 2024.
Development of inflation in Germany Main factors that influence the conditions of real estate financing:
- Credit history (SCHUFA)
- Income stability and employment
- Amount of equity
- Sources of equity
- Loan term
Credit history (SCHUFA) SCHUFA plays a central role in assessing the borrower's creditworthiness. It collects information about financial activities, including loans, contracts and payment disciplines. The SCHUFA score ranges from 0 to 100: the higher the score, the lower the risk for the lender. A high score (usually over 90) increases the chances of getting a mortgage on favorable terms. The importance of a transparent credit history: Regular checks of the SCHUFA report help to maintain a high score, as even small payment delays can negatively affect the credit score. In December 2023, the European Court of Justice ruled that banks may not use the SCHUFA score as the sole criterion for rejecting a mortgage.
Income stability and employment Banks carefully analyze the borrower's income stability. For people with a permanent employment contract, obtaining a mortgage is less problematic. Self-employed and freelancers face greater financial documentation requirements as their income may be less stable.
Minimum necessary income As a rule, banks require that the mortgage payment does not exceed 30-40% of the borrower's monthly income. Additional income from rentals and investments can be taken into account when calculating the total solvency.
Equity The standard equity share in Germany is 20-30% of the property value. It is important to take into account additional costs such as property transfer tax, notary fees, brokerage fees and insurance.
Main Sources of Equity Personal savings, financial support from family, income from sale of assets and investments can serve as sources of equity. The banks require proof of the legality of the sources of funds and can request account statements.
Additional collateral Mortgage on other properties, securities and investments can be used as additional collateral to increase the borrower's creditworthiness. Third party guarantees can also be accepted by banks.
Interest Rates There are two main types of interest rates: fixed and variable. Fixed interest rates remain unchanged for a predetermined period of time, usually between 5 and 30 years. Variable interest rates change depending on market conditions.
Mortgage offers in October 2024 Examples of offers from popular banks:
- Deutsche Bank: interest rate from 3.4% to 4.5%, fixed interest rate for 10 years.
- Commerzbank: interest rate from 3.3% to 4.0%, fixed interest rate for 5-20 years.
- KfW Bank: interest rate of 2.5% to 3.5% for support programs, fixed interest rate for 10-30 years.
- Other banks such as ING- DiBa, Santander Bank and Targobank also offer competitive interest rates and conditions.
