"If you want to buy a house, you have to bring at least 20% of the amount with you," everyone has heard such sentences. To buy a €300,000 house, you need €60,000 in equity. Who has saved that?
Saving used to be easier. There were fewer tempting things to buy, and interest rates were much higher. According to Statista, interest rates in the 1990s averaged 2.8%. You could earn 2.8% interest in a bank account or government bonds. Today that's unimaginable; inflation is already factored in. No wonder people had more savings then.
But there was a downside: high interest rates. The 1990s average mortgage rate was 9.73%—today's 2% rates would have been a maximum then. Every mark brought in was a rescue. When the euro was introduced, rates dropped to around 5.7%—still higher than today.
In the 2010s, new options arose, especially after the financial crisis reduced the motivation to save. Houses cost only €148,000 on average—good for buyers without equity. They could get subordinated loans, "fake" capital where the bank bore all risk. Interest rates were very high, a windfall for lenders.
Today, young home buyers get a break. Saving hasn't really helped. Banks hardly ask about equity now. Subordinated lenders are standard. Mortgage rates are often under 2%— buyers just pay a bit more, around 4%, for extra costs.
For example, the average detached house price is €385,000 (Immowelt, January 2021). With 10% extra costs, €38,500 is more than most have saved. A bank that usually does high-interest installment loans covers it, probably at 5%. The rest, €100,000, comes from KfW bank at 0.84%, the rest at 1.4%. The bank, broker, and buyer all benefit.
It's understandable; savings earn almost no interest now. But it also risks more for buyers and banks. The total loss could exceed the land charge collateral. KfW funding helps cushion the risk. Financing is really three parts: a main loan, KfW funding, and a subordinated loan. The buyer pays around 1.5% overall and likes it. As a financing broker, I get my clients the best rates for all three parts from lenders.
In the end, it's how a young generation has learned to handle money. And generous banks are aware of that.
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