The most important points
Equity generally reduces the amount of credit required and can improve the terms of your mortgage. Many guides suggest 20 to 30 per cent of the total costs as a guideline, but this rule of thumb is no substitute for an individual assessment. It is particularly important that you factor in the additional purchase costs in Berlin from the outset and do not put your entire savings into the purchase. When it comes to financing, other factors that matter include your net household income, what monthly repayment you can sustain in the long term, and how the bank values the specific property. Full financing may be possible in individual cases, but it is generally more challenging and carries greater risk. However, with a clear calculation, you can assess early on what scale of financing suits your plans and what you should look out for during financing discussions.
1: Equity for a flat in Berlin
As a rough guide: the more equity you contribute, the smaller the loan you’ll need to take out. This can reduce your monthly repayments and make your financing more robust. Many financing guides cite 20 to 30 per cent of the total cost as a sensible figure. However, it is not just the percentage that matters, but also the question of what is left in your account afterwards. Anyone who puts all their savings towards the purchase can quickly find themselves under pressure in the event of a repair, a special levy or an unexpected expense. Good financing therefore combines equity, manageable instalments and an appropriate safety buffer.
Useful milestones for guidance
The first stage is reached when you can cover the ancillary purchase costs from your own funds. This means you are not financing tax, notary fees and other ancillary costs through the loan. In the second stage, you contribute a portion of the purchase price as well, which further reduces the amount of the loan required. The third stage is reached when, in addition to the incidental purchase costs and a significant portion of the purchase price, you still have a liquid reserve remaining. Which stage is right for you depends, amongst other things, on your income, employment situation, household expenditure, the condition of the property and the financing plan.
2: Calculating your own funds when buying a property
For a realistic calculation, you should not stop at the purchase price. First, add up the purchase price, ancillary costs and any costs that may arise immediately after the purchase. Depending on the property, these may include, for example, renovations, moving house or initial purchases. Do not simply deduct your total savings from this total amount. It makes sense to set aside a portion as a reserve for unforeseen expenses. The difference shows how much borrowing you are likely to need. You should then check whether the resulting monthly repayment fits within your household budget in the long term.
Additional purchase costs in Berlin: these expenses need to be factored in
The ancillary costs of buying a property in Berlin primarily include the land transfer tax, which amounts to 6 per cent of the purchase price. Added to this are notary and land registry fees, which, depending on the transaction and the property, are often estimated at around 1.5 to 2 per cent of the purchase price. If an estate agent’s commission has been agreed, this can also increase the amount of equity required. If you’re buying a flat, you should also take a look at the service charge, the maintenance reserve fund and any potential upcoming works on the building. Not all of these items are traditional additional purchase costs, but they do affect how sound your overall budget is.
Example: How much equity do I need for a purchase price of 500,000 euros?
For a purchase price of 500,000 euros, the land transfer tax in Berlin amounts to 30,000 euros. Notary and land registry fees may amount to a further 7,500 to 10,000 euros, based on a rate of 1.5 to 2 per cent. Even without any agreed estate agent’s commission, this already amounts to between 37,500 and 40,000 euros in ancillary purchase costs. This example illustrates one thing above all: even before a single euro of the purchase price is covered by equity, you need liquid funds to cover the ancillary costs. How much additional equity is advisable depends on a combination of your monthly instalment, the bank’s terms and your financial reserves.
3: What counts as equity when buying a flat?
Equity primarily consists of liquid savings held in current or instant-access accounts. Depending on your individual situation and the bank, building society savings, securities or certain life insurance policies may also be included in the financing. Gifts from family members are also a common consideration, but should be properly documented. Existing property or other collateral may also influence the financing. It is important to note that not every asset is available at the same rate, and not every bank values them in the same way. When planning, you should therefore distinguish between freely available funds, assets tied up long-term and a reserve for day-to-day living.
Why the reserve should not be used entirely towards the purchase
A flat entails ongoing obligations after purchase. In addition to interest and capital repayments, these include service charges, any costs that cannot be passed on to tenants, and possibly future repairs or special levies. Whilst using every reserve as equity means you need a smaller loan, it also leaves you with less flexibility to deal with the unexpected. A sufficient reserve is therefore not a sign that you are investing too little. Rather, it can help ensure that your financing remains stable even if your personal circumstances or the costs associated with the property change.
4: Financing a flat: considering equity, monthly repayments and loan-to-value ratio together
When assessing your financing, the bank does not just look at your equity. Your income, existing commitments, monthly outgoings, the fixed-rate period and the mortgageable value of the flat are also relevant. The less borrowing you need in relation to the property’s value, the better the terms are likely to be. Nevertheless, ‘more equity’ is not automatically the only correct answer. The key is to ensure that the monthly repayment fits comfortably into your household budget in the long term and that you retain sufficient flexibility. A realistic budget therefore takes into account not only rent or mortgage repayments, but also living costs, insurance, pensions, leisure activities and a financial safety net.
The flat itself is part of the financing
When it comes to a flat, it’s not just your household budget that counts, but also the quality of the property. A low instalment is of little help if high costs for the roof, heating or façade are due shortly after the purchase. You should therefore check the declaration of division, the management plan, the annual accounts, the maintenance reserve and the minutes of owners’ meetings before securing financing. These documents will help you to better identify potential follow-on costs. They are therefore just as important for planning your equity as the purchase price itself.
5: Buying a flat without a deposit – is it possible?
Buying a flat without a deposit is possible in certain circumstances. However, banks will then scrutinise particularly closely whether your income, employment status, credit rating and the property’s value can support the higher level of financing. The terms are often more stringent because the loan covers a larger proportion of the property’s value. In addition, the ancillary costs of the purchase remain a key consideration: these often have to be paid from liquid funds. Full financing is therefore not a shortcut, but a decision involving higher requirements and less financial leeway. Anyone considering this route should compare several offers and calculate the monthly outlay on a particularly conservative basis.
A good equity ratio starts with a comprehensive calculation
There is no single figure that can answer the question of how much equity you need for a flat in Berlin. The purchase price, additional purchase costs, income, monthly repayments, the condition of the property and your personal reserves must always be factored into the same calculation. Anyone who can cover the additional costs from their own funds and also contribute a reasonable proportion of the purchase price often creates a more solid foundation for the financing. However, it is important that the financing also fits in with your everyday life and that you remain financially independent after the purchase. Our coming home Sales Team will be happy to help you realistically assess the additional purchase costs, property documentation and financing prospects for a specific flat.
This article is for general information purposes only and does not constitute individual investment, tax or legal advice.
