Buying property in Germany? Building a house? Renovating, even? You’d be a fool to not get help with the payments. Germany may have a reputation for renting rather than buying, but the country is currently awash with government subsidies and cheap state loans, with over 6,000 different forms of assistance available, many available to expats and long-term foreign residents.
A decade-long property boom which threatens to price consumers out of the market means authorities want to encourage property investment, especially for families, first-time buyers and the low-paid. But caution is needed: With interest rates remaining doggedly low, government credit may end up more expensive than commercial banks.
One of the most straightforward programs is Baukindergeld, a recent federal government initiative. First-time buyers with children and annual incomes below €75,000 ($88,000) are eligible for a grant of €12,000 per child. Those who already bought a home in 2018 can backdate the help to the start of this year.
The main federal agency supporting new builds and house purchases is the KfW, the federal government’s development bank, otherwise responsible for overseas aid and export finance. In recent years, it has become well-known for its housing subsidies, which include generous grants to renovate existing properties to make them more energy efficient or more accessible for people with disabilities.
A core KfW scheme is “Program 124,” which last year disbursed €4.2 billion to around 87,000 property owners, mostly in the form of subsidized loans of €50,000, which can be used as a deposit for a property loan from a commercial bank, as long as the property is used by the buyer or their immediate family.
That program can also be combined with other KfW deals, including a program of subsidized loans of up to €100,000, to buy an energy-efficient home, or €30,000 to improve an existing home’s energy efficiency.
KfW loans and subsidies are associated with a property, not a person. What that means in practice is that if necessary, a subsidized home-owner can sell and move, then re-apply for another loan – particularly useful for work-related moves.
In the past, KfW loan conditions have been criticized, in particular its interest rates, which even with a subsidy can sometimes be higher than commercial bank rates. But Program 124, in particular, has a high degree of flexibility, with variants allowing partially fixed rates or years of interest-only payments. Like commercial loans, prepayment penalties can apply.
German banks are now accustomed to dealing with state-subsidized loans, and even internet-only mortgage platforms can easily integrate KfW bureaucracy into a normal loan application. But it is well worth looking beyond the large federal agencies.
Almost every German state and many of its local authorities offer help to families and first-time buyers with purchasing or building a home. It may take some research to discover what is available, although internet resources like www.foerderdata.de and www.aktion-pro-eigenheim.de can point the way to local opportunities, albeit auf Deutsch.
Germany’s largest state, North Rhine-Westphalia, has its own development bank, NRW Bank, which helps families and low-income buyers, including with energy-efficiency and mobility renovations. NRW Bank says foreigners living long-term in Germany are equally entitled to support as German citizens, as long as the basic preconditions are met.
Subsidies come in various shapes and sizes. Some states pay extra bonuses to borrowers when the final repayment is made on a property. Some limit subsidies to families with several children. Bavaria has generous subsidies, but only supports those with very low incomes.
Not great news for those living in Munich, a real estate boomtown. Property finance expert Elgin Gorissen-van Hoek says that to be eligible for support in Munich, you almost certainly can’t afford to buy there.
Local authorities provide yet another layer of support. Towns suffering population loss may offer discounts on land purchase. Details vary widely: The city of Mainz only offers help to buyers with 3 children or more, whereas wealthy Düsseldorf offers at least €35,000 in assistance to families with children or a disabled person.
Matthias Streit is a correspondent for Handelsblatt. Reiner Reichel has been working for Handelsblatt since 1995 and specializes in real estate, closed-end funds and system models. To contact the authors: firstname.lastname@example.org, email@example.com