Not paying off the house - dumb or sensible?

Okay, then I think I understand now.

My impression is also that this (for me manageable) risk is taken rather rarely – on the other hand, I deal with it very intensively and work in the industry; for many, comparing different loan offers is already (understandably) difficult. And what here is more cautious restraint due to lack of experience, you rather have the opposite in the Anglo-Saxon countries, where they take the risk even if they don’t understand it.

If you work in the industry, the thread alone disqualifies you. Or do you advise your customers incorrectly?

If you work in the industry, the thread alone disqualifies you.

Since you have not commented on the content so far, I interpret that you would consider it foolish not to pay off a property by retirement?

Or do you advise your clients incorrectly?

Don't worry, I don't advise anyone. The industry offers plenty of room for people who do not advise yet through their work can better assess the importance of annuities, residual debt, special repayments/cancellation and the dynamics of the interest markets than many other homeowners. Without wanting to say that I know where house prices and interest rates will be in 20 / 40 years and without wanting to say that some homeowners have not also done their homework.

If houses are not paid off by retirement, there is no money in old age to carry out necessary renovations. These are exactly the run-down houses that then have to be completely renovated before the final move-out. Just junk.

I believe that especially because you work in the credit industry, your view of the big picture is heavily clouded. Sure... over the last 30 years, interest rates and property value increases have only gone in one direction and therefore you think it will continue that way because that is all you know. Falling interest rates --> rising property values because people can afford more. The majority of people finance to the limit of their ability.
But now, with interest rates near 0%, it can't go much further. Where should the "value increases" come from? Who is going to pay for it? And then there are other risk factors like Corona. Even today, to think that the hamster wheel keeps turning in the same direction is very naive in my opinion.

But just do it anyway, it could go well too.

My impression is also that this (for me manageable) risk is rather rarely taken

I do not generally consider your approach wrong, and as bookstar wrote, it may be an outdated paradigm.
It also depends on the personal financial background. Inheritance, well-off family, own high liquidity, etc.

My thoughts on this:

- The speculation period is very long. I do not know how many years you have under your belt, but the last 10 years have been a dream for all property owners. Whether through dirt-cheap refinancing or exploding value.
It has not always been like this, and there are (long) cycles here as well, just like in all other industries. Do not make the mistake of assuming that the last 10 years will continue like this for the next 35-40 years. Nobody can know that. Not even for downtown Munich.
- Value appreciation occurs especially over the value of the land, not the building. Quite the opposite, the building ages, is used, and over time no longer meets technical or energy standards. Perhaps the design also no longer fits the zeitgeist. What good are expensive marble floors and golden faucets if 90% of interested parties only think "ugly, that needs to be renewed."
- As Tassimat wrote, it is not just about carrying no burden from the mortgage at retirement but also having free funds for renovation. A single-family house then reaches an age of 30-35 years, and the big renovation projects slowly knock on the door (heating, windows, roof, facade, ...).
One can also discuss and say, why bother, it still holds up, why am I still investing six figures at 65, what do I get from that? This is how the "worn-out" houses of older people come about, until sometimes only demolition is worthwhile.
- I can also understand the idea of seeing the house only as a life companion. But will that really happen? One emotionally connects considerably more with one’s own property than with any rented three-room apartment. You built it yourself, possibly cared for it for decades and adapted it to your own ideas, the children grew up there, the garden has become beautifully overgrown, maybe the neighbors became the best friends? Today’s rational planning can look completely different in 30 years. Maybe there are grandchildren in the neighboring town by then, and you don’t just move 500 km away to the coast...

And the other important question: To what extent is the risk lower with a smaller house?

The lump sum is simply smaller. 5% loss on €200,000 is less in absolute numbers than 5% on €500,000.

What you describe is a model very common in the UK and the USA

Now to the difference:

One important difference added:
The significantly lower incidental purchase costs. In Germany these are 5-15%, depending on the federal state and whether a broker is involved or not. In the case of a "normal" single-family house, €25,000-75,000 can quickly be thrown out the window just to complete the change of ownership. The money is gone.
Then we usually have loans with fixed interest periods, which can lead to prepayment penalties when sold prematurely, which also goes straight out the window. This is also something typically German (security yay!), elsewhere loans are variable, and you can be out of the deal after 3 months.

I can also understand the idea of seeing the house only as a partner for a phase of life. But will that really happen? You connect emotionally much more with your own property than with any rented three-room apartment.

Germans are just too narrow-minded. Buying, selling, moving, rebuilding is not an emotional drama in most other countries. Properties are bought/sold according to the phase of life. I am currently looking for the fifth (purchase/construction) property at the end of my 40s. Just like a car also has to fit your life.

I would even agree with that in principle. The problem is that the additional purchase costs are quite high here. Therefore, you need quite a bit of money for the model.