Home ownership much harder to finance than ten years ago

Rising real estate prices and higher interest rates are putting pressure on affordability - what this means for buyers and sellers.

Reading time: approx. 6-7 minutes
Status: August 2025

Summary

• A recent analysis by Cologne-based asset manager Flossbach von Storch shows that The affordability of home ownership has deteriorated noticeably compared to 2015.

• Reasons: sharp rise in purchase prices in the 2010s and significantly higher mortgage interest rates since 2022 (currently often around 3.5-4.0%).

• According to an example calculation (average purchase price € 350,000, 86% financing, monthly budget € 1,900 incl. energy/maintenance), the repayment period for property loans has almost doubled.

• It remains to be seen whether falling interest rates will make up for this - inflation expectations and yields on long-term German government bonds remain decisive.

What does Flossbach von Storch measure?

Flossbach von Storch has been calculating an affordability indicator for residential real estate since 2003. The index takes into account

• Nominal income development,

• Real estate prices,

• mortgage interest rates,

• energy and maintenance costs.

The amortization period serves as the core measure: it shows how many years an average household needs to pay off the debt on an average property - based on realistic assumptions about equity, interest, ancillary costs and the current household budget.

What has changed since the 2010s?

In the 2010s, very low interest rates largely compensated for rising purchase prices - housing remained affordable despite the upward trend in prices. Since the rise in interest rates in 2022/23, the ratio has reversed:

• Purchase prices have maintained their high level in many places (with regional corrections),

• Interest rates are now well above the zero interest rate phase,

• Energy and maintenance costs have become more expensive.

The result: same property, same income - but noticeably more difficult to afford. Many households are finding that the property that friends were able to buy a few years ago is no longer readily available.

Sample calculation from the analysis

• Average purchase price: €350,000

• Debt ratio: 86 %

• Interest rate: around 3.5-4.0% p.a.

• Monthly budget: €1,900 (for loan installment plus energy and maintenance costs)

Based on these assumptions, the analysis shows that the repayment period of a typical real estate loan has almost doubled - i.e. a significantly longer commitment to financing and interest rate risks.

Important: Individual markets deviate. In Grafschaft Bentheim, we see different price and demand patterns than in metropolitan regions, depending on location, property condition and energy efficiency. However, the basic interest rate effect applies everywhere.

Looking ahead: Are interest rates falling - and will that help?

Whether lending rates fall again depends primarily on

• inflation expectations and

• yields on long-term German government bonds (relevant for mortgage Pfandbriefe).

Even with moderate interest rate cuts, affordability will remain strained without significant price or income changes. A rapid return to the ultra-low interest rate levels of the 2010s is currently not to be expected.

Consequences for buyers

1. Strengthen equity: 20-30% equity plus ancillary purchase costs reduce the rate, interest premiums and repayment period.

2. Choose a realistic property class: Energy-efficient properties or properties that can be renovated with a clearly calculated renovation plan can be more attractive from a mathematical point of view.

3. Maturities