House construction 2024, affordable with little equity?

Hello forum!

Like many others, we have the dream of owning our own house – but currently it’s rather scary when you see how quickly interest rates and building costs are developing or have developed in recent weeks and months. Nevertheless: We plan to build a house in our village in 2024, that’s at least the dream.

In our village, there has been a newly developed residential area with 13 plots since last year. We were lucky and received the approval for our dream plot at the end of last year:

[*
Plot comes from the municipality
[*]Field edge location at the end of a new street
[*]800 sqm, price 100€ / sqm
[*]fully developed purchase price 80,000 € plus land registry, notary + tax
[*]building obligation – completion of house and garden including 2 proven parking spaces on the plot must be done by May 2027



For the plot, we took out a variable loan of 80,000 € from our house bank at the beginning of this year, interest rate approx. 1%. Notary, land registry and tax were paid out of pocket. Monthly repayment for the loan currently 600 €.

About us:


[*]I work in the public sector 40h/week, the original fixed-term contract still runs until autumn 2023 but should be lifted early after a conversation with my boss (probably still this year). Current salary 2000 € net plus Christmas bonus and 13th salary, private health insurance already deducted there.
[*]Partner 29 years old, full-time job 40h/week since 2018 as a project manager in B2B marketing, 95% home office activity. Current salary 3000 € net plus 2k gross bonus per year plus possible performance bonuses up to max. another 2k gross.
[*]Currently unmarried, wedding planned. Desire to have children is basically there, but not within the next 5-6 years.


Income and asset situation:


[*]What income do you have (net)? Currently 3000 € net + 2000 € net = 5000 € net
[*]Current equity approx. 15,000 € (ETFs)
[LIST]
[*]Unfortunately quite low at the moment, because – to put it bluntly – we didn’t really have much money within our family before. There simply was no time to save properly for years, only since the end of my master’s degree and the start of working life has that been possible at all. My partner fully repaid his then taken-up BAföG and a KfW study loan in 2018/2019 (around 45,000 €).


[*]Gift from our parents in the amount of around 20,000 € as a house building subsidy

Housing costs:

[*]Current warm rent: 600 € / month
[*]Electricity: 75 € / month
[*]Phone, internet, mobile, streaming services: approx. 150 € / month (2 phone contracts, MagentaZuhause, Netflix, Amazon Prime, Sky)

Mobility costs:

[*]Car loan (or savings rate for new car): Car 1 – financing 220 € / month (still runs until 2026, then paid off); Car 2 – leasing 290 € / month (runs until the end of 2023, then possibly the option to switch to a company car)
[*]Insurance: both cars together 90 € / month
[*]Taxes: both cars together approx. 20 € / month
[*]Fuel: both cars together average last months approx. 250-350 € / month (fluctuating depending on our home office share)
[*]Repairs: both cars are still under warranty until 2024 (Car 1) and until the end of the leasing period (Car 2), currently budgeting approx. 50 € monthly for tires, inspections & oil service

Insurance costs:

[*]Liability insurance (also pets): 100 € / year
[*]Pension insurance (also Riester, Rürup, etc.): 80 € / month
[*]Other insurances (household contents, dog surgery insurance ...): 300 € / year

Living expenses:

[*]Groceries: 700 € / month (including dog food etc.)
[*]Restaurant costs: 50 € / month
[*]Care/drugstore: 100 € / month
[*]Day care/school fees (and meal money): -
[*]Club fees/gym: -

Savings / other expenses:

[*]Vacation: 600 € / year
[*]ETFs: 600 € / month
[*]Variable plot financing: 600 € / month

House building wish:

[*]+/- 140 sqm single-family house
[*]Double carport (possibly garage, but probably too expensive)
[*]Without basement
[*]Fenced garden with nice lawn (so the dog can romp outside without ending up curiously at the neighbor’s)
[*]Otherwise no special wishes – a study or guest room and a pantry would be great – all a matter of budget when the time comes
[*]We can only contribute limited DIY work ourselves (we are both not particularly handy, but my uncle has his own painting business and would help us very cheaply here, he has already promised this)

What does the forum think? Realistic to pursue our dream further? We are willing to forgo a lot for the house building dream (holidays, etc.), in recent months we have already adjusted many levers to save money (reviewed all contracts, changed insurance, made fewer car trips, planned/ canceled cheaper holidays …), but unfortunately at the moment we do not know how interest rates and building costs will develop in 2023 or 2024; that is unfortunately the big unknown that worries us a bit. The plan is to wait until 2024 since my fixed-term contract still runs and before that is settled, it’s just too uncertain for us (in addition, the constellation of little equity + fixed-term contract would probably not be well received by banks).

Looking forward to your opinions! :)

Best regards
Franzi

Hello,

I say this reluctantly, but for me, this wouldn't be anything in this constellation. We now have a very similar monthly income, whereby a company car is already factored in here, but at the time of construction in 2015/2016, we had over 100K more equity, and both the construction prices and the interest rates were not only significantly better but also much more predictable. In the end, including all interest payments, we will have paid about 360K for the entire project.
We are currently paying an installment of about €1200 (of which almost €1100 is repayment) and manage very well with what I said is a similar income (with a small child).
I think you would probably have to pay off about €2000 per month to achieve a reasonable repayment; otherwise, after 10 or 20 years, you would still have a relatively high remaining debt.
Since neither the interest rates nor the construction costs are really predictable for you, I have doubts that you will stay under 500K all in all, if you even manage to get all the building materials.
I really say this reluctantly, but in these times, I find building very risky anyway, and it would give me countless gray hairs. Surely some people would finance 500-600K with a monthly income of 5K, but for me, that would already be too much. Of course, you can limit yourself for your dream of a house, but you would probably have to limit yourselves extremely and still have so many uncertainties due to the current circumstances. Another point would be whether children are maybe planned?! Then it would be even more difficult, as you also want to offer something to your child. It’s just unfortunate that you are already financing a plot of land, which naturally makes it mentally difficult to back out now.

I wish you much success if you go through with it.
Otherwise, with €600 rent, you live quite cheaply and can enjoy yourselves well with a 5K income, save more equity, and maybe at a later time, hopefully again in more predictable times, either purchase something used cheaper or consider building again.

Greetings from Middle Franconia

I think you still lack the equity for a timely construction. But there is still some time until 2027, and in principle it is also enough to finalize it in 2025 or, in the worst case, 2026. What will happen by then... there are way too many unknowns to make a reliable statement. Who would have thought 6 months ago that we would already be at over 2% interest for 10 years?

Basically, you should save up a decent capital stock in the next 3-4 years. €5000 net is not little. I find it a bit surprising that you only have €600 for the plot of land and €600 for ETFs (or something is missing from the list). Let me put it this way: if you want to build a house, you need to save at least €2000 per month, better €2500. That way you would have paid off the land by the start of construction and still have a bit of money left.

If I were in your position, I would quickly pay off the plot of land and continue saving. ETFs are nice and bring returns in the long term, but for a withdrawal at time X that is rather unfavorable. You would then have to save that on daily money accounts once the land is paid off.

Hello, welcome.

I am currently not sure how much you can save per month. I see there is a €600 installment for the land, €600 ETF. Together with €600 warm rent, that is not enough. With a net income of €5000, there should really be significantly more left.

Well, otherwise you have to calculate how much is left long-term with children, parental leave or part-time work, daycare costs, etc.

Whether it is possible in the long term is very hard to predict. I am of the opinion that the market and prices might calm down a bit in a few years. But where the interest rates will then be is unclear.

Therefore, save as much as possible for now.

Sounds unfriendly, but if you haven't learned to save by 30, it's very difficult to do so now. Spending almost 4000.-- per month is something you first have to unlearn. Student loans and Bafög are in the same direction. If you want to do it, then a 550,000 loan is possible, which makes 470,000 for the house. That should be enough for 140 m². It gets tight with children.

Thanks to you all already for the constructive feedback! :) I hadn’t mentioned that the shell must be completed by May 2025. So waiting 3-4 years is unfortunately not possible, construction would have to start at the beginning of 2025, so the financing needs to be done in 2024.

I think you still lack the equity for construction in the near future. But there is still some time until 2027, and basically it is also enough to finalize it in 2025 or, in the worst case, 2026. What will be by then... there are way too many unknowns to make a reliable statement. Who would have thought 6 months ago that we would already be at over 2% interest for 10 years?

In principle, however, you should save up a decent capital stock over 3-4 years. €5000 net is not little. I’m a bit surprised that you only come to €600 for the plot and €600 into ETFs (or something is missing in the list). I’d say, if you want to build a house, you need to save at least €2000 per month, better €2500. That way you would have paid off the plot by the start of construction and still have some euros left.

If I were in your position, I would pay off the plot quickly and save further. ETFs are nice and bring long-term returns, but are rather unfavorable for withdrawals at a given point in time. You would then have to save that on overnight money accounts once the plot is paid off.

In fact, between €400 and €1200 go monthly into an overnight money account, which I forgot in the above list (despite reading it several times, mea culpa). Sometimes more, sometimes less, depending on what comes up during the month. Together with ETFs and the plot loan, we currently reach a saving rate of between €1600 and €2400 per month – maybe there is still a bit more possible.

I can absolutely understand the "if you haven’t learned to save by 30" thing and basically see it the same way, but in our two families it simply wasn’t possible in this form for various reasons – why, I don’t want to go into now, as it wouldn’t change anything. The fact is: saving wasn’t possible before, as much as I would have liked to.

Looking forward to more opinions! :)