Buy or rent? This question worries many people and can often only be answered according to the respective situation in life. A new study provides orientation in the current rise in interest rates.
According to a study by the German Economic Institute (IW), buying an apartment or house is often significantly cheaper than renting it, especially with new contracts. However, the sharp rise in lending rates reduces the benefits significantly. Real estate buyers were better off than tenants in all German regions in 2021, according to an analysis by the IW. But the advantages for buyers are dwindling as interest rates rise, especially in expensive cities.
For the IW study with the real estate company Accentro, the costs of owner-occupiers were compared with those of tenants. Accordingly, buyers are responsible for the purchase price and ancillary acquisition costs such as real estate transfer tax and notary, the burden of interest on loans and lost interest - real estate buyers could have invested the money for an apartment or a house. This is based on the return on first-class corporate bonds.
Maintenance and depreciation costs were also taken into account, and increases in value were capped at three percent per year. Real estate has risen much faster in recent years, but the boom should not be overemphasized. On the other hand, there were the net cold rents in new contracts and in existing rents.
The result: If owner-occupiers in Germany paid an average of EUR 4.21 per square meter in 2021 - at the then very low interest rates on loans of just over one percent - tenants had to pay EUR 10.30 per square meter for new leases for comparable apartments and EUR 7.04 for existing contracts . Buyers had an advantage of almost 60 percent over tenants, or 40 percent in the case of existing rents.
According to the study, there was a large lead even in the expensive metropolises. "The fall in interest rates over the past year has overcompensated for the increase in purchase prices," said IW real estate expert Michael Voigtländer. The reform on the division of brokerage commissions has also relieved buyers. "But rising interest rates will significantly reduce the owner-occupier cost advantage."
With the high inflation, financing has become rapidly more expensive: According to FMH-Finanzberatung, interest rates for ten-year standard loans have more than doubled from less than one percent to an average of around 2.5 percent since December - and the trend is rising.
In three scenarios with an increase in building interest rates to 2, 2.5 or 3 percent, the IW has calculated whether property buyers will still fare better this year than tenants with new contracts. An interest level of 2.5 percent already more than doubles the costs for owner-occupiers (8.55 euros). If you factor in rising purchase prices, the result is 8.97 euros per square meter. With three percent interest on loans, the owner-occupier costs rise to 10.63 euros. In this scenario, renting is already cheaper than buying in 86 of the 401 German administrative districts and urban districts, the authors write.
Especially in the areas surrounding the seven largest German cities and other major cities, buyers have an advantage even with higher interest rates. The "neutral interest rate" for ten-year financing, from which the owner-occupancy costs correspond to the new contract rents, is 3.6 percent in the metropolitan areas, 3.1 percent in other large cities and 3.5 percent in their surrounding areas. If the interest rate is even higher, tenants have an advantage. For the other districts, the IW arrives at a neutral interest rate of 3.7 percent. In the seven metropolises, including Berlin, Munich and Hamburg, tenants are already 2.8 percent better off than buyers.
Owning your own home is considered good old-age provision. However, the decision between renting and buying depends on the respective living conditions, such as whether frequent professional moves are necessary. And while some people would like to live independently of a landlord, others point to the advantages of not being in debt and not having to pay for expensive repairs.
The authors emphasize that this is an exemplary calculation. Strong increases in the value of apartments and houses, as in the past few years, have benefited owners even more than shown in the study. On the other hand, people with cheap old contracts in expensive cities do well when it comes to buying or renting. Experts from the "Finanztipp" money guide also point out that tenants can also have great financial opportunities: Anyone who invests their money in high-yield investments such as shares over the long term "can also build up long-term assets as a tenant, in some scenarios even more than when buying a property", you write.
For buyers, a lot depends on interest rate developments. "It is difficult to continue the rapid increase in construction interest rates," says IW expert Voigtländer. This means that inflation can level off at a high level. However, experts from FMH-Finanzberatung expect mortgage interest rates for ten-year financing to rise to three percent as early as the summer months. An end to the upward trend is not in sight, they recently wrote - with painful consequences for real estate buyers: "Interest rates of four percent this year are not pessimistic, but very realistic."