This article was also published by DispatchesEurope.com.
I always wanted to live in a house. The whole of Berlin seems to live in rented places, mostly apartments because houses are only prevalent in rural areas. We also rented an apartment when we first came here, but the rental prices made me cringe every time the payment went off our account. Also, the dream of a home was still there.
I actually don’t know where it came from. I don’t come from an affluent family; my parents always lived in a small apartment, a rental one, though in the end, they bought it out. It only had one bedroom; we, the two kids, occupied it, and our parents slept on the sofa in the living room. This was the way most of the families I knew lived. It was normal for post-Soviet countries.
My mom only got to sleep in a queen-sized bed when we grew up and went to another city to study at the university. She finally managed to turn our room into a bedroom for herself. When I see huge bedrooms and awesome, fluffy beds in American movies, I always think of my parents, who could neither have a big bed themselves before we left the house nor provide such a luxury for their two daughters. Then again, in some countries, people sleep ten to a room and often with no bed at all, so who am I to complain?
Whatever the reason, though, I saw a house in my mind’s eye. I already knew that I wanted personal space for everyone living in it. I didn’t see many other details about this house, but I knew it was somewhere out there, waiting for me. So whenever I thought I had an opportunity to finally start looking for it, I tried to grab it. And so as soon as we settled in Germany, worked there for a few years to get permanent residence, and saved some (not much) money, I started persuading my husband that it was time to think of that house. After all, we already had a child, permanent residence, and stable job contracts. We were renting our second property in Berlin (the first one was an apartment, but after the child was born, we were lucky to find a great half-duplex), and it was getting to feel more and more like a pain to pay so much for something that won’t ever belong to you.
It was clear from the very beginning, though, that we would need a mortgage. And a big one.
How much is the fish: real estate prices in Berlin
Historically, Berlin was considered to be “cheap” in terms of real estate — cheaper than Munich or Frankfurt. However, it has seen a huge jump in these prices in recent years. According to Immowelt, purchase prices for apartments in Berlin have risen by 62 % between the years 2017 and 2022. In 2022, a square meter in Berlin cost a median of 5077 € whereas in 2017 prices were still favorable 3129 € per square meter.
Big real estate agencies post a lot of useful information on their websites, including the average prices, distribution by area, year-by-year increase, etc. The current price per square meter (sorry square feet folks, it’s Europe with a metric system) in Berlin is 6395 EUR according to the website of Engel&Völkers, a huge real estate agency. But that doesn’t really tell you much, so let’s try to apply this information to something.
Let’s say I want a house of approximately 120–130 sqm (~1300–1400 sqft). By American standards, this would probably be tiny (in 2022, the average square footage of a single-family home in the USA was 2,383 square feet). But for Europe, this is nothing to smirk at because the average size of a newly built house in Germany is 109 sqm (1185 sqft). So it’s actually a little above the average.
Just multiplying this by the average price, we find out that on average, one needs 767–831K EUR to buy a house in Berlin. But what kind of house? Where? How many rooms? How old is it? Does it require renovation?
One of the main factors that define the price is, of course, the location.
We lived in Steglitz-Zehlendorf, one of the most expensive areas of Berlin, and ideally, would want to stay there. It is in the southwest of the city, very green, very quiet, very safe, very child-friendly.
And… very, very expensive.
With almost 10K/sqm, the house price for 120–130 sqm house would jump well over a million euro. This was an amount we could not even imagine, let alone get covered with a mortgage. Our initial calculations have shown that we can probably reach 700K, but that was already a big stretch: we only had about 100K saved after 5 years in Germany. What was definite is we could definitely go no higher than 700K. So, we needed to either look into other Berlin areas, or outside of Berlin.
Sniffing around the edges
The areas of Berlin that would fit into our budget were either in the north or in the east, neither of which we wanted very much. We still went to some viewings there. In fact, we probably went to ten or more. Some houses were really, really nice, almost new, well built, with great interiors. But the areas just left me thinking that they wouldn’t be a fit. Something was always wrong. Too far from the transport connection, too many high-rise buildings in the area, too industrial, too boring. In short, it was just not Zehlendorf, which I already knew like the back of my hand, and where we had all the infrastructure: doctors and pediatricians, the childcare, the shops.
This left one other option: to look into the suburbs or the satellite towns.
Germany is split into federal lands, something like the states in the US. But the federal state called Berlin only includes… Berlin. There are no other towns; it’s like the Luxembourg of federal lands. Whatever is around Berlin is located in Brandenburg. And as you can see above, the prices in Brandenburg are much more… let’s call it people-friendly.
We still needed to commute to Berlin though, and this meant that the commute should be realistically manageable. So our first choice would be towns that were connected to the Berlin public transport systems. Ideally, the S-Bahn.
There are not many places like that, but they do exist. Potsdam, for example, is on the S7. Or Teltow, on S25. Both these towns were also expensive, though. For Potsdam, the average price of a square meter for a house of 100 sqm was actually higher than in a lot of Berlin areas.
But we liked Teltow. It was small and green, very close to Zehlendorf geographically, but closer to cheaper areas of Berlin in terms of price. One could find a house of 130 sqm under 700K there. In fact, the one we found was 137 sqm and 675K, though as you will read later, it was a new building, still being built so we needed to wait for it. It would also not come completely done when finished, which meant it required some additional investments.
But let’s also talk about other additional expenses. The extras, aka Nebenkosten.
How much is the fish, take two: extras
In Germany, buying a house comes with a lot of additional costs (Nebenkosten). The list looks like this:
- Property transfer tax (Grunderwerbsteuer) — 3.5 to 6.5% in different Bundeslands;
- Real property tax (Grundsteuer) — up to 1%;
- Notary and land registration fees — 2%;
- Real estate agent fee — usually around 7%, but split between the buyer and the seller. Some places come without a real estate agent, but those are a rare find;
- If the house is newly built or — the opposite extremity — not in a great state, there might be additional renovation costs. For example, ours was a new building that came without flooring, paintwork, a built-in kitchen, garage door, shower stalls (they built the showers themselves but no cabins), and also without other small things that tend to add up. Such a situation doesn’t happen very often, though. Usually, the developer of a new house does at least the floors and walls.
What one needs to know is that all these costs are NOT covered by the mortgage that German banks provide, which means that they should come from your own capital.
As these costs can easily come up to 10–20% of the house costs (6.5% property tax, 3.5% real estate agent, 2% to the notary, 1% land tax is already 13%, and there can be much more depending on the renovation costs), it’s no trifle.
Say that the house costs 600K and you have 100K. You may think that you have 16.6% of the initial cost and therefore can afford a down payment of the same value. But in fact, if the extra costs are 10%, you only have 6.6% for the down payment and a lot of banks will not want you. And if the extra costs are 15%, your potential down payment shrinks to a miserable 1.5% and I am sorry to say but all the banks will probably say no. Save some more money and come back later.
But I am being too hasty. We can’t come to discuss the banks and mortgages before we’ve found the house. And that in itself is no easy feat.
Looking for a house within the budget
The inflation in 2022–2023 has been rising faster than the mortgage rate in some federal states, which makes analytics say that the real prices have been sinking.
I could note that this “sinking” isn’t easily felt by a person with an income which, indeed, no one thought to also correct based on the increasing inflation rates. But maybe in a perfect world, someone has a perfect income, which increases perfectly in sync with those rates, or even faster. Let’s all pretend to believe that.
Oh and by the way, even though the prices are supposedly getting lower, the real estate market in Berlin is still very much a seller’s market, where a house viewing might bring a lot of visitors. And this means that even if you applied for a house, it’s not at all guaranteed that you will get it.
We started searching for a house at the end of 2021 when the market was still very much on the rise. Our initial requirements were a house under 700K EUR but with at least 4 bedrooms because we wanted a master bedroom, a nursery, a guest room, and a home office. Like everyone else, we wanted a good connection to public transport, a bearable commute to the center of Berlin where we both worked, and a quiet green area with as many private houses as possible, as opposed to huge blocks of flats. We both grew up in huge honeycomb-like apartment buildings, and I for one never wanted to live in one such anymore. Since these apartment buildings were in abundance in East Berlin, we preferred to stay in the West.
Such requirements didn’t leave us with much of a choice, but in the end, we found something. It wasn’t a free-standing house, though; not even a half-duplex. It was a townhouse in a newly built area in Teltow, a quiet satellite town on the border of Berlin, but still on the S-Bahn railway, though our S-Bahn station was the end of the line. The townhouse had a tiny handkerchief-like lawn, but it was still enough to put a grill on it and throw in some garden furniture, and what more did we need? We could even fit a very own sandbox for our small son.
What was left is to get it paid for.
This actually entailed another expense — a reservation fee. We already knew that dealing with the banks won’t come easy or fast, because we already lost one house to the long-processed mortgage application. Someone else was faster financing the deal and got the house. This time, we had the option to reserve the house for three months and pay 1% of its cost for it.
If we were successful in obtaining the mortgage, this payment would go into the down payment. If not, it would be lost to us forever.
We paid the reservation fee and ran to get that mortgage.
How much is the fish, take three: cost of money
Even though the “real” real estate prices have supposedly been sinking in the last year, the mortgage rate has not.
By the end of the year 2021, when we found the house, the mortgage rates were floating around 2%, but it was still possible to find an offer a little bit under. While we were talking to the mortgage advisor and looking into the offers from the banks, the rates were steadily rising. The offer we accepted in the end, more than two months later, was already over 2%. Right now, in the middle of 2023, it would be twice as much.
Suppose someone was to take one of the current offers from the picture above. The Commerzbank one. What happens after 15 years of fixed monthly payments?
So after 15 years, 575K is paid, but 513K is still outstanding. Remember, the total amount of the loan was 675K. How come it’s not even half-paid? Well, because the interest rate ate up 430K out of those paid.
How long, then, until this loan is paid off? I will tell you.
36 years, 7 months.
If we were to do it now and not 1.5 years back, I know we would not be getting that loan. We just wouldn’t live long enough to pay it off.
What this means is, even if the houses get cheaper, the money isn’t. This is supported also by the graph below, borrowed from an article on the Interhyp website.
This is why with the house prices stagnating or even pulling a little back, people are way more wary of getting into the mortgage now. No one wants to borrow while the money is expensive, and then pay a fixed rate and see that it actually becomes cheaper. Many simply can’t afford these rates. We wouldn’t be able to, either.
Obtaining the mortgage: personal experience
As expats in Germany and not speaking perfect German, dealing directly with the banks was something we’d have preferred to avoid at all costs. That’s why even before we found “the” house, we were looking into companies that made it easier. In Germany, two such companies that we found were Hyporfiend and Interhyp. Hypofriend even had this nice calculator on the website that allowed you to calculate how much of a loan you can afford.
That’s where they shot themselves in the foot, though.
We don’t complain about our income. We’re both highly qualified and quite well-earning software engineers with a lot of experience, so kinda on top of the food chain, well if one doesn’t take into account the real rich people. But however I tried to tweak that Hypofriend calculator, the amount it proposed to us was well below the one we needed. So I gave up and scheduled a call with the Interhyp advisor. We were even lucky enough to find one speaking our language, though she lived in Leipzig, not Berlin. But since all the calls were happening online anyway, no one cared.
Important information: these services are free for house seekers. My guess is, they get their commission from the banks.
During the initial call with the advisor, she assured us that the amount we wanted would be indeed possible to obtain.
The Interhyp website allowed us to enter the data for all the houses that we were looking at, calculate the proposed mortgage rates from different banks, and see how the terms changed while tweaking the conditions, like for how many years would we want to get the loan, how much of a down payment we wanted to bring in, how many years of fixed mortgage rate to have. For some houses, the advisor warned us off, saying that the official assessment won’t be high enough.
One more thing to keep in mind: more expensive houses, those that cost more than 500K EUR, will probably entail an assessment on the side of the bank. The mortgage has some flexibility in relation to that assessment, because the bank takes into account the market situation, too. But if the actual price of the house exceeds the assessed one for more than 20%, max 30% (but that’s a big stretch), you will get a no from the bank.
Not getting a loan… and getting a loan
Even though we didn’t go to the bank ourselves, it was still a disappointment when the first bank we applied to via a consultant rejected us. The advisor said not to worry, this bank had a high rejection rate and it was a long shot… but our clock was ticking. The reservation fee, remember?
So it was with great apprehension that we, via the same advisor, sent an application to the bank where we actually had all our savings and our accounts. The bank that we started in Germany with and were still clients of. The big old Deutsche Bank.
A week or so later, the advisor scheduled a call with us and said that she got good news and bad news.
The good news was, we got the loan.
The bad news was, not quite under the same conditions.
Instead of the simple loan we wanted, the bank proposed to split it into three parts, each with its own rate and its own maturity. One of the parts would also require an additional contract because it would come from Bausparkasse, not from the Deutsche Bank itself. As the advisor said, this is additional security for the bank. This is how they are hedging the risks.
We sighed and looked at each other‘s long-ish faces, but you remember the ticking clock?
We bit the bullet.
We signed the mortgage contract in February 2022, and the contract for the house a month later. In October 2022, the developer did a handover of the house. It took us several months to get the paintwork, flooring, and kitchen done because we were doing it in stages, as soon as we managed to save some money for each following step. Also, Germany isn’t famous for being lightning-fast with these kinds of jobs — our kitchen, for example, was ordered in June 2022 and installed in… January 2023.
In April 2023, we moved in.