Are box seats still possible with hereditary lease?

Good day! The usual Google research unfortunately only helped me to a limited extent. Therefore, I am trying to obtain clear answers/information through this channel. Background: I am currently planning an extension to the parental home. It is a leasehold property. The contract was concluded over 40 years ago with a private owner. The term is, as usual, 99 years. On some websites it is noted that banks refuse construction financing if the builder is a private person. In addition, banks nowadays do not look favorably on this arrangement and would require higher equity or charge higher interest rates from the borrower in such cases. What is the actual practice? Thank you in advance. Regards schaefan

How does practice really look?

Heritable building rights are still quite common today. More equity is basically correct, since the house always has to accept a discount in valuation due to the disadvantages of the heritable building right (in the lending value). But this only becomes interesting when everything is calculated precisely to the last detail. A private issuer of heritable building rights is actually rather rare; banks don’t like that very much. But in summary: No problem to finance (my last apartment was also a heritable building right, which no one cared about).

Hello! Thank you for your response. Did you have to contact many banks or were they all open to a loan?

Did you have to contact many banks or were they all open to a loan?

Both when buying (2016) and selling (2020 - the buyers did not report any problems) it was not a problem. Both in the savings bank and cooperative sectors. I did not go through an intermediary (I am a banker myself in the real estate sector).

Of course, leasehold is still common. But not among private individuals. Leasehold grantors are almost always cities/municipalities and even more often the church. It also corresponds to my knowledge that it is difficult to find financing for this constellation.

Good morning,

so leasehold is still possible... there are banks that have no problem if the leasehold owner is a private person.
It is important to pay attention to the term here. Banks usually want the loan to be repaid at least 10-20 years BEFORE the leasehold expires.

That means if the leasehold runs for 99 years, and now 40 years have passed, there is a remaining term of 59 years, meaning the loan should probably be paid off much earlier. (so repayment somewhat higher)

The disadvantage is that the land is the part of a property that gains the most in value (and you don't own that!)

My parents also had a leasehold plot from a private person and bought it a few years ago. Just ask around. Then you simply finance more, but what gains value also belongs to you.

If the leasehold continues to exist, banks also capitalize it as a prior charge. That means the value, or the maximum financing amount, is then significantly lower than if you owned the land.

So leasehold is associated with many disadvantages... few advantages (actually that you have to take out less credit BUT pay ground rent = comparable to a loan installment, and you pay nothing off here...)

Therefore, if possible: buy the land (just ask around, I've already had a few cases where it worked).