House construction 2024, affordable with little equity?

May I ask roughly where you are building?

Hello,

We have been in a very similar situation as you and decided against building a house for the following reasons.

Household income 5,500 euros net plus commission payment 6k annually), equity 50,000 euros (painstakingly saved up, since also studying and would be completely used up for incidental purchase costs, kitchen, and buffer for the construction). One might think that for our age (32 and 34) these are quite stable circumstances, at least in our area.

The total loan amount for us would have been 480,000 euros, since plots south of Berlin are quite expensive (at least 300 euros/sqm, rather more). Since you are planning a double garage and surely want some amenities (roller shutters, walk-in showers, etc.), your house construction will be around 300,000 euros. Probably more. We had to make many compromises in the planning. Annoying.

Our financer presented us with initial financing calculations, and we were shocked. Due to the low equity and the desired installment of 1,800 euros, the banks offered interest rates from 2.6% to 3%, with a repayment of 1.5%! After 15 years, that results in an estimated remaining debt of about 330,000 euros. What if interest rates rise to 4-5%? With such a high remaining debt, you won't get a favorable interest rate for the follow-up financing. Oh yes, with the best offer we would have had to pay off for 37 years at the same interest rate. Crazy idea.

We are just realistic now. I don't want to live year after year in fear of interest rate hikes. Saving up even more equity, as you do, means no vacations. Saving every cent. But we also have an 11-year-old child, which would be unfair to her. After building the house, it's not better due to the high installment. And you work 60 hours a week for that.

Therefore, we decided to rent a large, beautiful apartment, which you can easily get in Berlin for 2,000 euros warm, and leave the stress of rising interest rates and maintenance reserves to the owner. We take our equity and have a small holiday home built at the Mecklenburg Lake District and only take out a small loan.

You have already purchased the plot and paid interest. I have to honestly say, we are relieved that we withdrew from the land purchase contract and did not make the final signature.

Maybe my report helps you to approach the matter very objectively again and go through everything, which installment you have at which interest rate, how much additional incidental costs you have per month with a house, and which amenities like vacations and so on should still be affordable. Because remember, the house only belongs to you when the last euro is paid off.

Best regards, just

A sympathetic contribution ! Without irony, in case anyone might think that. However:

For remember, the house only belongs to you once the last euro is paid off.

That’s not how you live it. From the day you move in or even during the construction phase, it is "yours" – that’s how you live in your own four walls, even if it is financed at 4/5. Because as long as you can comfortably pay the installments, you don’t think about it.

Hello,

We were in a very similar situation as you and decided against building a house for the following reasons.

Household income €5,500 net plus commissions (€6k annually), equity €50,000 (hardly saved, as we were also studying and it would be completely used up for incidental purchase costs, kitchen, and a buffer for the construction). One might think that these are fairly stable conditions for our age (32 and 34), at least in our area.

The total loan amount for us would have been €480,000, since plots south of Berlin are very expensive (at least €300/sqm, rather more). Since you are planning a double garage and surely want a few amenities (roller shutters, walk-in showers, etc.), your house construction will go towards €300,000. Probably more. We had to make many compromises in the planning. Annoying.

Our financier presented us with initial financing calculations, and we were horrified. Due to the low equity and the desired installment of €1,800, each bank offered an interest rate of 2.6% to 3%, with an amortization of 1.5%! After 15 years, that results in a remaining debt of approximately €330,000. What if interest rates rise to 4-5%? With such a high remaining debt, you don't get a favorable interest rate for the follow-up financing. Oh yes, for the best offer, we would have had to pay off over 37 years, at a fixed interest rate. Crazy thought.

We are simply being realistic now. I don't want to live year after year with the fear of rising interest rates. Saving even more equity, as you are doing, means no vacations, saving every cent. But we also have an 11-year-old child, and that wouldn't be fair to her. After building the house, it doesn't get better due to the high installments. And you work 60 hours a week for that.

Therefore, we decided to rent a large, beautiful apartment, which you can easily get for €2,000 warm in Berlin, and leave the owner with the stress of rising interest rates and maintenance reserves. We take our equity and will build a small holiday home at the Mecklenburg Lake District and only take out a small loan.

You have already purchased the plot and paid interest. I have to honestly say, we are relieved that we withdrew from the land purchase contract and did not sign the last signature.

Maybe my experience report helps you to approach the matter objectively again and go through everything, what installment you have at which interest rate, how much additional incidental costs arise monthly with a house, and which amenities like holidays and so on should still be affordable. Because remember, the house only really belongs to you when the last euro is paid off.

Kind regards, just

Very nice post and a good plan with the holiday home. That is always the dilemma when living in boom regions and prices decouple from income. Especially Berlin, IT jobs which are for example very well paid in Frankfurt and Munich are often offered "cheaply" by young people. Prices rise, incomes remain rather low.

Thanks to you all for the quick answers here! :) At first, of course, it’s a bit sobering to see, but it is what it is – if it doesn’t work out, it doesn’t work out. If it works, it’s nice. At this point, I’d like to summon the lottery god, as miracles do happen from time to time.

: In my list above, I actually come to just under 3000 euros/month for rent + utilities, car + groceries: 600 + 75 + 150 + 220 + 290 + 90 + 20 + 250-350 + 50 + 100 + 80 + 25 + 700 + 50 + 100 = in total roughly +- 2,850 €.

Funny enough, I have thought that myself before – too “poor” for a new build and too “rich” for no ownership, quite an apt sentence (unfortunately). :(

Hello,

another comparison, you would now have to restrict yourselves even more. Forego vacations and big purchases and limit private life (eating out) to build equity. Or try to change jobs to earn more.

You can compare this to my gym. I started exercising to build muscle, but I still eat sweets. That means legs, arms, butt look good, the belly still wobbles. Do I know that sweets are not good = YES, am I willing to give them up = NO.

You see, it’s also a dilemma.

Hello,

We were in a very similar situation as you and decided against building a house for the following reasons.

Household income 5,500 euros net plus commission payment 6k annually), equity 50,000 euros (painfully saved, as also studying and would for ...

I completely understand you. Many of our acquaintances now think the same and have no desire to pay off for 37 years.
My opinion on this, however, is as follows: Anyone who does not build/buy will pay rent forever. Rent in Germany will certainly not decrease due to influx, political decisions, etc., especially not in Berlin.
So would I rather pay a constant amount X per month for 35 years or an amount Y for life, which might currently be less than X but will sooner or later exceed it?

If you don’t buy a fixer-upper, you always have a tangible asset against your debt and thus the option to sell again and rent again.

Many imagine they owe the bank a large amount and that the house belongs to the bank.
That is not entirely correct.
You should rather see it as rent you pay to the bank to be allowed to live in the house. However, this rent is finite compared to rent to a landlord and goes as repayment into the house like into a piggy bank.

Nonetheless, you should be able to afford the house and the payment.