Property-Saving is one of the most popular financial products among Germans, and almost three-quarters of all German households had a Property-Savings-Plan contract in 2016. But what exactly is a Property-Savings-Plan, how does it work, what are its advantages and disadvantages, and who really benefits from such a contract?
A Property-Savings-Plan combines traditional saving with a real estate loan. The customer enters into a Property-Savings-Plan contract with a building society for a specific Property-Savings sum. Every Property-Savings-Plan consists of two parts: the savings plan and the real estate loan. At the beginning of the contract, it is determined what savings ratio must be achieved for the customer to enjoy the loan benefits. The interest rates on both the savings and the subsequent loan are known from the outset.
Imagine 10 families want to realize their dream of owning their own home, none of which currently qualify for a loan. Moreover, these families also lack the necessary capital to purchase a property. However, they can save ten percent (10%) of the required capital per year. Thus, they would need 10 years to finance their dream property. At this point, the building society comes into play. If these 10 families do not place their annual savings in a normal savings account but in the building society’s pool, there is enough money in the pool after just one year for the first family to finance their home. The first family takes the entire savings from the pool, uses it to finance their home, and continues to pay into the pool for another 9 years (thereby repaying the loan they received from the others). In the following years, the principle works similarly: the second family gets their home after 2 years, the third after 3, and so on. Thus, the families only have to wait an average of 5 years to finance their homes, instead of the 10 years it would have taken if they had saved the money themselves.
In the real world of Property-Savings, of course, there are not just 10 families paying into the building society but hundreds or even thousands. Also, not everyone wants to buy a house in the next 10 years. Some might want to buy their house much sooner, others later, and some might decide not to buy a property at all and cancel their contract without taking out the loan. This simplified example, however, shows what a Property-Savings-Plan consists of. With Property-Saving, you have a savings component, a phase where you save money, and a loan component. If you take out the loan, you receive money from the community, which you then have to repay.
The most important figure when signing a Property-Savings-Plan contract is the so-called Property-Savings sum, which in Germany in 2014 averaged €38,400.
This sum consists of your savings share and your loan share. Property-Savings-Plan contracts are often set up in a 50:50 ratio. This means that for a Property-Savings sum of €30,000, you must first save €15,000 to then receive a loan of €15,000.
This ratio, however, varies from building society to building society and also changes with different rates. In some rates, your savings rate may be only 30%, and in others, it may be 40%.
During the saving phase of a Property-Savings-Plan, you receive a savings interest on your balance, which is generally slightly lower than the market interest rates. In the loan phase, you pay an interest rate for your credit.
However, the interest rate you get with a Property-Savings-Plan is fixed upon signing the contract and does not fluctuate as it might with other financial products.
When you sign a Property-Savings-Plan contract, you go through different phases during the term of the contract, with the third phase only required if you take out the loan.
After completing the saving phase, the allocation phase begins. During this period, the building society will notify you that your Property-Savings loan is available. However, certain minimum requirements must be met. For instance, you must have reached a certain minimum saving duration, which can range from a few months to at least 2 years. There are also other criteria that must be met, which can vary from building society to building society.
In the allocation phase, you must also decide how to proceed with your Property-Savings-Plan contract. You have essentially three options:
– Accept the loan offer
– Postpone the loan offer
– Withdraw the saved sum and cancel the contract
If you accept the loan offer, the loan will be disbursed, and you can use it to purchase or modernize your desired property. If you postpone your loan, you can continue saving money and take out your loan at a later date. However, your loan amount will be reduced by your additional saving share. If you decide to dissolve your Property-Savings-Plan contract, your saved money plus interest will be paid out. You will then have no claim to a loan from your building society and thus will not enter the third phase of Property-Saving.
Once you have signed your Property-Savings-Plan contract, you save until you reach your minimum saving sum. This could be the 50% of the Property-Savings sum mentioned or just 30% or 40%.
In the loan phase, you receive the loan from the building society and must demonstrate that you use the money for residential purposes.
This means that the money must be used only in the context of housing. For instance, you can buy a house or condominium, renovate a property, or equip it with new interior furnishings. It is also possible to repay loans taken out in connection with real estate with the Property-Savings sum.
However, you may not finance a vacation or a car with the loan.
Once the loan is disbursed, of course, you must repay it. This is done analogously to your payments from the saving phase, where you deposit a certain amount each month to repay your credit.
When you sign a Property-Savings-Plan contract, you go through different phases during the term of the contract, with the third phase only required if you take out the loan.
Once you have signed your Property-Savings-Plan contract, you save until you reach your minimum saving sum. This could be the 50% of the Property-Savings sum mentioned or just 30% or 40%.
After completing the saving phase, the allocation phase begins. During this period, the building society will notify you that your Property-Savings loan is available. However, certain minimum requirements must be met. For instance, you must have reached a certain minimum saving duration, which can range from a few months to at least 2 years. There are also other criteria that must be met, which can vary from building society to building society.
In the allocation phase, you must also decide how to proceed with your Property-Savings-Plan contract. You have essentially three options:
– Accept the loan offer
– Postpone the loan offer
– Withdraw the saved sum and cancel the contract
If you accept the loan offer, the loan will be disbursed, and you can use it to purchase or modernize your desired property. If you postpone your loan, you can continue saving money and take out your loan at a later date. However, your loan amount will be reduced by your additional saving share. If you decide to dissolve your Property-Savings-Plan contract, your saved money plus interest will be paid out. You will then have no claim to a loan from your building society and thus will not enter the third phase of Property-Saving.
In the loan phase, you receive the loan from the building society and must demonstrate that you use the money for residential purposes.
This means that the money must be used only in the context of housing. For instance, you can buy a house or condominium, renovate a property, or equip it with new interior furnishings. It is also possible to repay loans taken out in connection with real estate with the Property-Savings sum.
However, you may not finance a vacation or a car with the loan.
Once the loan is disbursed, of course, you must repay it. This is done analogously to your payments from the saving phase, where you deposit a certain amount each month to repay your credit.
Embark on your journey to home ownership with AIVADO. Contact us for a personalized consultation and discover how our building savings plans can help you achieve your real estate goals. Together, we’ll turn your housing dreams into reality.
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