Building a house is a real challenge at the moment. But saving for it is back in fashion. With this good old financial product.
The dream of owning your own house has become a distant dream for many people: Finding a tradesman? Preferably with contacts. Covering the increased material costs? Maybe you can manage it with great difficulty. But then also paying the construction interest rates that will skyrocket in 2022? That’s where many financing concepts fall apart.
While new business in building financing has collapsed and the construction industry is reporting a wave of cancellations, a financial product that already seems a bit dusty is experiencing a second spring away from the mainstream attention: the good old building savings contract.
New business in building savings has increased significantly in Germany in 2022. In terms of the volume of newly concluded building savings contracts, he expects an increase of 40 percent for the past year compared to the previous year, says Bernd Hertweck, Chairman of the Board of the Association of Private Building Societies. In terms of the number of contracts, it is 15 percent more. The average building savings amount per contract is now at its highest level of over 70,000 euros. Demand is still high.
The sum is also increasing because the contracts are not being used so much to park money safely – but because people really want to take the option of financing property or renovation, said Reinhard Klein, head of the Schwäbisch-Hall building society.
The association director of the state building societies, Axel Guthmann, puts the increase in the building society sum for the months January to September 2022 at almost 49 percent. The number of contracts concluded rose by 22.8 percent. The state building societies account for around a third of the German market, with the private institutions sharing the rest.
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The reason for the boom is obvious, says Guthmann: “Builders and buyers want to protect their property financing as best as possible against the risk of rising interest rates.” Safe equity formation and low-interest loans – that is the core idea of building savings. People rediscovered this for themselves in the spring.
Hertweck also says that with building savings, interest rates of between 1.5 and 2.5 percent can still be secured in the long term. For comparison: According to figures from the comparison portal Check24, interest rates for building financing of 300,000 euros at banks at the end of November were between 3.0 and 5.2 percent.
The run on building savings also shows that the dream of home ownership is still alive for many people, say the building societies. But there are more and more problems with the feasibility. For an increasing number of people, home ownership is currently not affordable, says Guthmann. And not just because they don’t have enough equity, but because many can no longer afford the loan installments. “Since only a few prospective owners can mobilize other sources of capital instead, this inevitably means that the demand for home ownership is decreasing – but mostly unintentionally.”
German banks’ new business in construction financing collapsed in the second half of the year, with the consulting firm Barkow Consulting recently reporting a record decline. Building societies continued to pour a lot of money into the housing market over the year as a whole: private providers expect to be able to reach their previous record of 31 billion euros in construction loan payments from 2020 again in 2022.
And according to Guthmann, the public building societies are even showing a slight increase compared to the previous two years. In 2021, 9.2 billion euros were invested. According to Guthmann, this is mainly due to the first half of the year. “In the meantime, the decline in demand for building finance is also becoming noticeable at the building societies.”
The Ifo Institute has been reporting a wave of cancellations among construction companies for months. So far, rental housing construction has been particularly affected, says Hertweck, who also heads the Wüstenrot building society based in Ludwigsburg near Stuttgart. But there is also increasing uncertainty in the area of owner-occupied homes: “People who want to finance are more often waiting to see how the situation develops.”
