At the end of last year, there were around 22 million building society contracts concluded in Germany. This financing option has recently become attractive again for those looking to buy since building loans have become more expensive. Building societies generally charge significantly lower loan interest rates than banks. We explain everything you need to know about building society contracts.
How the building savings contract works
Through the contract, you save equity for the construction, purchase or modernization of your own property. First, you determine the amount you want to raise. For this so-called building savings sum, you pay a certain amount into the contract every month. Once property owners have saved part of the sum – usually half – they can withdraw the balance. They borrow the remaining amount up to the total from the building society.
Before signing a contract, consider when you will need the financing and how much you can save each month. You can then choose the building savings plan based on this.
Calculate the allocation date
You should calculate your contract so that it is paid out on time on the date you want, i.e. reaches the so-called allocation maturity. Otherwise you may need expensive interim financing. According to the information provided by the funds themselves, they are not allowed to give you an exact date when the money will arrive – for legal reasons. However, building societies provide rough information about the payout in the savings and repayment plans.
Keep an eye on the interest rates
The interest rate for your building society loan is already fixed when the contract is signed. The interest rate is often better than with conventional building financing. Roland Stecher from the Bremen consumer advice center sees this as an advantage: “You secure the current low interest rates for the future.” Sometimes ten years in advance and regardless of how the market interest rate develops. This ensures planning security.
However, the low-interest loan is offset by low-interest credit balances. “The return is a disaster,” says Stecher. To limit this disadvantage, only the minimum balance agreed in the tariff should be saved. Stecher recommends putting a maximum of 50,000 euros into the contract because of the poor interest rate. The rest of the money should be invested elsewhere.
A building block in the financing mix
Building society loans supplement the main loan from the bank. According to experts, they are rather unsuitable for complete financing. As a rule, it makes sense to cover 20 to 40 percent of the purchase price with the building society sum, according to the magazine “Finanztest” (issue 5/2024). The reason: building society loans have to be repaid more quickly. This drives up your monthly burden and thus limits your financial flexibility.
On the other hand, special repayments of any amount are possible. This reduces the interest burden. Unlike commercial banks, building societies do not usually charge an interest surcharge for special repayments or a prepayment penalty if the loan is repaid earlier than originally planned. Each property buyer should calculate individually how much money is needed from the building society contract and the classic mortgage loan.
The state contributes
The state subsidizes building savings contracts under certain circumstances. Basically, there is the housing premium, the employee savings allowance and the residential Riester. The amount of the subsidy – and whether there is any at all – depends on income: with the housing premium, there is an additional 70 euros per year for singles, double that for married couples, with the employee savings allowance it is a maximum of 43 euros for singles, 86 euros for couples. With the residential Riester, the annual subsidy for a family of four can be up to 950 euros. Important to know: “There is no double or triple subsidy,” says Alexander Nothaft from the Association of Private Building Societies.
These are the disadvantages of building savings
There are four big drawbacks to building savings: Firstly, the low interest on deposits. Secondly, the commission. The closing fee is to be paid directly when the contract is concluded; it therefore applies to both the savings and loan parts. “If the costs are higher than the interest on deposits, building savings can be a loss-making business,” says consumer advocate Stecher. In other words: the contract may not have been worthwhile. But that correlates with interest rate developments.
Thirdly, the monthly savings rate. Here, “Finanztest” advises sticking to the standard rate. Anyone who pays less risks having their contract terminated. The insurance company can, however, reject higher amounts. The standard savings contribution usually corresponds to three to five percent of the building savings sum – the savings amount is therefore not very flexible. And fourthly, the large number of tariff variants and conditions. This makes comparisons difficult and therefore also finding the optimal solution.
When building savings are worthwhile
According to Roland Stecher, building savings can be worthwhile for relatively small loans of up to 50,000 euros. Commercial banks often charge surcharges for such amounts. These are not available for building savings contracts. The low loan interest rates can be advantageous for people who seriously want to invest in their own property and are likely to need a lot of outside capital. However, it is then sensible to ensure that the building savings plan can be adapted to the individual’s life situation if it changes.
Particularly suitable for those who want to build: a small building savings contract. Photo: Hauke-Christian Dittrich/dpa
