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 (painstakingly saved, as we also studied and it would be completely used up for additional purchase costs, kitchen, and buffer for the construction). One would 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, as plots south of Berlin are very 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 approach 300,000 euros. More likely higher. We had to make many compromises in the planning. Annoying.
Our financer presented us initial financing calculations, and we were horrified. Due to the low equity and the desired installment of 1,800 euros, each bank offered an interest rate of 2.6% to 3%, with a repayment of 1.5%! After 15 years this results in a remaining debt of approximately 330,000 euros. What if the interest rates rise to 4-5%? With such a high remaining debt, you will not get a favorable interest rate for the follow-up financing. Oh yes, with the best offer we would have had to pay off over 37 years at a fixed interest rate. Crazy idea.
We are now simply realistic. I don’t want to live year after year with the fear of interest rate increases. Saving more equity, as you intend, means no vacations, like you said. Saving every single cent. But we also have an 11-year-old child, which is unfair to them. After building the house it is no better due to the high installment. And you work 60 hours a week for that.
We therefore decided to rent a large, nice apartment, which you can easily get for 2,000 euros warm in Berlin, and leave the owner with the stress of rising interest rates and maintenance reserves. 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 sign the final document.
Maybe my experience report helps you to approach the matter objectively again and go through everything, what installment you have with which interest rate, how much additional ancillary costs you incur monthly with a house, and which amenities like holidays and so on should still be affordable. Because remember, the house only belongs to you once the last euro has been paid off.
Best regards, just
Interesting points - which I do not share at all and think that although you made the right decision emotionally (because you are very fearful there), it is a short-sighted one.
If you simply live renting and do not save anything at all, you will not be one of those 60-year-olds who can rely on a paid-off house - but rather one of those who have rented for 30 years and will be significantly poorer than the comparable property owner.
Keep in mind that the 1.5% or 2% repayment you make on a real estate loan is a form of saving - which you as a renter also need. And on top of your 2000 euros warm rent, a few hundred euros will come on top - so from an income/expense ratio, you are not living in luxury as a tenant either.
Instead of fearing a well-plannable (since reviewed monthly) interest rate increase in 15/20 years and worrying about the follow-up financing when the time comes (which is really well plannable), I would have massive fear because of constantly rising rents and, for example, a termination due to owner’s own use / termination in general. And if you compare a nice large apartment with a single-family house plus garden, that’s apples and oranges. If you get divorced in 12 years, you can sell the house, pay the costs from the proceeds, and both of you benefit. If you have to find a new place in Berlin in 12 years, well good luck with what you’ll pay in rent then.
It is important to understand that renting is not the "safe bank" either, as you also bear other risks. If you pay 2,000 euros today, what will the rent be like shortly before retirement with a 1.5% annual increase? That scares me!
I don’t want to bring up the rent vs. buy discussion again, but you have to consider that there are risks with both options.
You simply decided for consumption (see vacations etc.) instead of building something financially over decades. Let me be clear again: What do you prefer? At 60 a property near Berlin that is, for example, 80% paid off, or at 60 paying 3,000 euros warm rent?
The reason why very few renters have built significant wealth is because you cannot save anything beyond the rent. At least you should use the high amount that monthly goes to the bank (or in your case to the landlord) (this is called “repayment”).