One hundred percent financing does not exactly have the best reputation, especially in Germany. In fact, people here tend to frown on it. Many buyers consider it a bit suspect to acquire real estate entirely by means of a loan and with no down payment. People who buy property in Germany tend to cover a considerable share of the price with their own capital. Fifty-seven percent of ZIEGERT’s customers made a down payment of at least 30 percent.
No, fortunately that is not the case,” says Stephanie Rosengarten, Financial Services Director at ZIEGERT. An expert in this area, she adds that it’s by no means unsound to make a small down payment that only covers the closing costs, if the general conditions are right. What’s essential is to match the terms of the loan to the individual conditions, and to plan for the long term.
It doesn’t make much sense to draw parallels with developments in the USA. “That’s comparing apples and oranges,” says Rosengarten. “We have a completely different credit system here.” For example, it’s still common practice in the United States not to cover the principal with the repayment installments but often just the interest instead.
This calculation only makes sense if buyers can rely on real estate prices continuing to rise. This means that the value of their house or apartment rises and serves as a security for the principal of the loan plus the costs. They are essentially using the property they purchased only as a consumer product for the cost of the interest. This system becomes problematic when there is a change in the buyers’ finances or a drop in real estate prices. The banks then recall their loans, and the property has to be sold.
The situation in Germany is completely different. “Our financing system is more conservative,” says Rosengarten. Each installment goes not only toward the interest but also toward the principal. German buyers also prefer to play it safe with their installment amounts. Two to three percent is common, in order to pay off the loan as quickly as possible. It’s also a question of mentality. “We Germans never want to be in debt.”
At any rate, certain conditions have to be met in order to be eligible for 100 percent financing, such as the ability to demonstrate a secure and sustained income. “This means that the risk here is not nearly as high as in other countries,” says Rosengarten. Full financing without a down payment is only problematic if a customer wants to have low payments and a 10-year fixed interest. “If the interest goes up after ten years, it can be difficult if you are not earning substantially more and cannot afford the higher payments.” But informing customers of such pitfalls and providing comprehensive and proactive consulting is what Stephanie Rosengarten and her colleagues in the financing department do every day.