Getting a Mortgage in Germany

Germany is located in the heart of Europe, yet property prices have remained relatively low for a number of years. This poses a tempting prospect for UK investors, and Germany also boasts its own seaside resorts on the northern coastline—the ideal setting for a holiday home or retirement destination.

Customers often come to us with questions about how to get a mortgage in Germany, how easy it is to obtain, what the conditions are, and how the German mortgage system works. Fortunately, the brokers we work with are experts at finding mortgages for people overseas, even if they have bad credit.

This article will cover all this and other areas to consider before getting an international mortgage in Germany.

Can I get a mortgage in Germany?

It is possible to get a mortgage to buy property in Germany. If you were using a mortgage lender in Germany, most lenders will offer loans at 80%. Although some lenders will allow you to borrow up to 100% of the property value, you should expect to pay a higher upfront deposit if you’re not a German citizen.

Germany is fairly unusual regarding property ownership, with over half the country’s residents opting to rent rather than buy. Ten-year tenancy agreements are quite common. However, Germany is at the bottom of the list of European homeowners, with just 46% of households owning their own home.

People much prefer to rent due to various factors, be it historical, cultural or economical.

Although mortgages have been very difficult to obtain in Germany in the past, this is not necessarily the case. It stands to reason that property in this country could make for good long-term investment for non-residents.

How to get a mortgage in Germany

Getting a mortgage in Germany is a very similar process to that of most of Europe, including the UK.

The steps involved are:

Step 1: Agree a price

Once you’ve set your heart on a property, you’ll need to arrange a verbal negotiation with the seller to agree on the terms and conditions of the purchase. At this point, you are not formally committed to buying.

Step 2: Draw up the contract

Next, you will need to approach a local solicitor to oversee the drawing up of an initial contract of sale. This will detail the terms and conditions, an agreed price and completion date of the sale. Legal checks will also be carried out.

Ensure to enlist an independent solicitor to represent you throughout this process. Ideally, they will be fluent in both English and German. If not, hire a translator so you have an accurate account of all documentation and verbal communications, as all documentation relating to the sale will be in German.

Remember to factor into your costs that you may need to have documentation professionally translated.

Step 3: Completion

To complete the sale, you will need to employ the services of a local Notary who will oversee the signing of the final contract and register the sale with the Land Registry.

This is when payment for your new German mortgage is transferred. You will also need to present a form of identification and any other requested documentation.

You will also be required to pay closing costs, typically around 7-10% of the purchase price.

These costs include*:

• Transfer Tax: 3% (approx)
• Notary’s fee: 1.5%
• Estate agent fee 6% (split between seller and buyer)
• Land Tax: 1%
• Wealth Tax for non-residents: 0.5%

*Depending on your location, there may be additional costs.

To find out more about German mortgage law and more detailed insight into the rules and regulations, make an enquiry. We’ll put you in touch with an overseas broker specialising in German mortgages for foreigners.

How does a German mortgage work for non-residents?

While the mortgage market bears some resemblance to that of the UK, there are also some differences:

Loan to value

While German residents may be permitted to borrow up to 80% of a property’s loan to value (LTV), non-residents can be limited to around 55–60% LTV. This means that if you opt for a mortgage provider in Germany, the deposit is likely to cost you quite a hefty sum.

The majority of mortgages in Germany are repayment-based. While interest-only mortgage plans exist, they are not as common as they are in the UK. However, most German mortgages are offered at a fixed interest rate, which could potentially be very beneficial for UK investors in the long term.

German mortgage affordability rules

Many customers want to know how much they can borrow for a mortgage in Germany.

How much mortgage can I get in Germany?

All providers have a restriction on how much they are willing to lend for a mortgage. Most UK providers cap at 4.5 times your salary, although some will stretch to 5x or 6 times your salary. In Germany, the cap for non-residents tends to be 3 times your income.

Affordability is calculated by looking at your debt-to-income (DTI) ratio, measured by subtracting your monthly outgoings from your income. The lower your DTI, the better, but other factors, such as job type, also play a role:

Full-time employed

If you’re earning a comfortable PAYE salary, don’t expect to get off lightly if getting a mortgage with a German lender.

You will likely need comprehensive proof of your income and expenses, including your last three months’ payslips, three to six months’ worth of bank statements, and your last two P60s.

Self-employed

The majority of German mortgage providers will request that you provide full, legitimate proof of your business’s financial status when applying for a self-employed mortgage.

A typical German lender will request a minimum of two years’ self-employed accounts, a year’s worth of both business and personal bank statements, and multiple previous tax returns.

You may also need a letter from a chartered accountant detailing your personal business withdrawals.

Credit history

The German mortgage market is fairly conservative, and most lenders will want evidence that you are a reliable saver and may also be extra scrutinous when it comes to checking your credit history.

UK lenders may be more sympathetic to adverse credit, but it will, of course, all depend on the circumstances. You can download your credit reports beforehand to see how your record looks.

Visit our bad credit mortgage section or make an enquiry to find out how your credit history could affect your options if you are applying for a mortgage in Germany with an overseas provider.

Should I consider an international mortgage to buy German property?

Although purchasing a property with German banks is becoming more commonplace, UK buyers may prefer to raise finance in the UK through an international lender with a presence in the British market.

This could be for a number of reasons:

• No translator fees and fewer associated risks with using an international lender if you’re not fluent in German and/or uncomfortable signing contracts in another language.
• If you take out a mortgage through a lender with a presence in your country, you may have access to a wider choice of mortgage products and better interest rates.
• There is the option to remortgage an existing UK property or to use another secured loan to pay for the property in cash.

Of course, there are other circumstances to consider. For example, if you’re a British expat living and earning in Germany, it may make more sense for you to take out a mortgage with a German bank.

If you can’t decide what’s best for your circumstances, contact us, and we can refer you to an advisor specialising in German mortgages.

Why speak to a German home mortgage specialist?

Whether you opt for a UK or German provider, there are always more complications surrounding getting a mortgage abroad rather than your home country.

Before you proceed, be aware of the following:

Tax liability

Be sure to account for any tax you’re liable to pay in the UK and Germany. The most insignificant oversight or mistranslation could cost you a lot of money.

Check the contracts carefully.

Read through any legal documentation carefully and ensure you have all the necessary permissions, licenses and planning consents before signing any contractual agreement.

Exchange rate changes

A small change to the exchange rate could have a drastic impact on the value of your property and, therefore, your mortgage payments overnight. This could go one of two ways, but it is especially significant given the uncertainties surrounding Brexit.

If you receive your income in Euros, for example, if you’re a British expat living in Germany, this will not necessarily apply to you.

Should I use a German mortgage calculator?

Although it can be tempting to turn to a mortgage calculator to assess your eligibility for a property in Germany, online calculators and simulators don’t always factor in that each lender will assess a borrower differently.

For example, a minor instance of adverse on your credit file could considerably impact whether or not a particular provider is willing to lend.

Is there a better way to work out mortgage costs in Germany?

To get an accurate quote that considers your circumstances, speak to a specialist. They can refer you to willing UK and German banks that will give you the best bang for your buck in Pound Sterling or Euro.

How to get the best German mortgage interest rates

We can’t stress enough the importance of speaking to one of the whole-of-market brokers we work with if you want the best rates for your new home in Germany.

The brokers we work with can negotiate competitive terms with high-street banks in the UK and also have connections with specialist German mortgage providers.

Working with us means receiving accurate, reliable advice surrounding local mortgage rules in Germany, the best interest rates for your circumstances, and peace of mind throughout the process. Make an enquiry today.

Why you should speak to a whole-of-market broker if you’re getting a mortgage loan in Germany

We’ve helped over 600,000 people find the right mortgage, even for buyers who have declined a mortgage or have a bad credit history.

In fact, our customers consistently rate us 5 stars on Feefo, mainly due to our high levels of service but also because we offer a 5-star service with access to expert brokers who are:

• Whole of market.
• Can offer bespoke advice to customers buying in the UK or overseas.
• Have a working relationship with all lenders, including international mortgage services.
• Already know the lenders to go to as they have successfully arranged mortgages in Germany.
• Are OMA Accredited advisors.
• Have completed a 12 module LIBF accredited training course.

Talk to a German mortgage advisor today

If you require more information on how mortgages work in Germany, call Online Mortgage Advisor on 0330 818 7026 or make an enquiry.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee, and there’s no obligation or marks on your credit rating.