Mr Bock, BaFin recently conducted a survey of more than 3,000 people on the topic of property financing. One area of focus was whether respondents could afford to repay their loans.

Christian Bock: Yes, that’s correct. We asked consumers with property loans how often in the preceding 24 months they had faced difficulties making their monthly repayments while also covering their living costs with their regular income. We found that over half of them experience such difficulties. Many of them stated that this happened “rarely” or “sometimes”, while 13% said it occurred “frequently” or “always”.

What do such borrowers do when they have difficulties making payments?

Bock: Many dip into their savings, postpone or reduce planned expenses, work more or take on an additional job.

What worries us is that more than half of respondents who experienced problems at least “rarely” said that they took on further debt, which has to be repaid in the short term. They stated that they pay bills late or by credit card and that they use overdrafts or exceed arranged overdraft limits. We view this as a problem because such short-term forms of credit are usually very costly.

And that isn’t the only problem.

Bock: Correct. Such consumers can lose track of their debts and slip into a debt spiral, meaning that they will no longer be able to repay their debts.

What can borrowers do if they are struggling with loan payments?

Bock: If anyone has difficulties making their monthly loan payments, they should seek professional support. This is especially important if borrowers are overindebted. In such cases, it can be helpful to look at the website of the German association of debt advisors (Bundesarbeitsgemeinschaft Schuldnerberatung). This website informs consumers about where they can obtain advice and what assistance is on offer.

How can consumers avoid getting into such situations?

Bock: There are a few questions that borrowers need an answer to before taking out a property loan. No matter how alluring the property seems or how strong your desire to own it might be, the first step always has to be careful planning and asking yourself honestly: What are my regular expenses? What level of repayments can I actually afford? Loan payments need to be set at a level that leaves some money for savings.

When seeking to buy a property, also remember that your life circumstances may change. This may be due to an accident or illness, for example, or perhaps due to separation. Various unplanned events could undermine your ability to finance the loan. In some cases, just a career change is enough.

We also advise borrowers to agree to loans that allow for unscheduled repayments. If borrowers have money to spare, they can use it to reduce the interest they will pay over the long run. The resulting savings are often greater than the potential gains from conservative investments, in fixed-term deposits for example.

Are longer periods at fixed interest rates advisable?

Bock: Fixed interest rates for longer periods usually mean the interest rates are higher. The upside is that they provide borrowers with far greater certainty when planning. Anyone interested in a property loan should take these factors into account. After all, interest rates may change in the future. If they rise again, this could result in higher repayments and problems in obtaining follow-up financing.

This is also reflected in the results of our survey. Of the respondents who were seeking follow-up financing in summer 2024, almost one quarter received one or more rejections in response to their enquires with banks. The most common reasons that banks provided were inadequate income levels and insufficient own funds. If borrowers need follow-up financing, they should leave themselves enough time to obtain it and to seek advice.