The most important facts in brief:

• Whether renting or buying is the better solution depends on your financial circumstances, but also on your personal attitude and life situation.

• Owning your own property is an important contribution to your retirement provision. Tenants need to make additional financial provisions in order to be able to afford their rent in old age.

• If you rent, you have fewer responsibilities and can change your place of residence more flexibly, but you have to reckon with rent increases or notices to quit.

• With a property, you acquire a capital investment that is considered a secure asset even in times of inflation and political uncertainty.

• The regional market situation also plays a role in the decision to buy or rent. In many places, renting is not cheaper than buying a property.

What are the advantages of buying a property?

There are many good reasons in favour of buying a property. Even if you are not building a new home, as the owner of a purchased property you have a lot of freedom in terms of design and desired structural changes. A property also makes sense as a capital investment: as a tangible investment with a stable value, it offers solid protection against inflation in uncertain times. If you have paid off your home by the time you retire, you will have more money available in old age - after all, you don't have to pay rent if you live in your own four walls. Last but not least, property ownership offers secure protection against rent increases or unexpected notices to quit. So it's no wonder that many people dream of owning their own home.

What are the advantages of renting?

It is clear that tenants do not need property financing that has to be repaid over decades. They also remain more flexible in terms of where they live - it is easier to move house if, for example, they have to move to another city for a new job. As an investment, a house or flat is often more difficult to sell than shares and similar investments, as it can take months to sell at a reasonable price. "Rent or buy" is also a question of type: Owning property is a long-term purchase, often for life. Anyone who buys a property is personally responsible for maintaining its structural condition. Tenants bear significantly less responsibility for care and maintenance.

Buying or renting property: A sample calculation

Whether it is worth buying a property or continuing to rent depends largely on the price you would have to pay for your dream property. Here is an example: Let's assume the basic rent for a flat with 120 square metres of living space is 1,400 euros per month, which corresponds to an annual rent of 16,800 euros. A comparable flat in the same location would cost 400,000 euros including ancillary purchase costs.

In the example calculation, the monthly burden of buying a home is barely higher than living for rent. Important: Unlike rent payments, the repayment instalments for the building loan are practically an investment. Once the purchased property has been paid off, you will only incur operating and maintenance costs, while the rent must continue to be paid month after month. Tenants also bear the risk of rent increases, while the property financing remains predictable until the fixed interest rate expires.

Alternative investment

An alternative investment to buying a property is an investment in shares, funds or ETFs. However, you should not invest the entire sum in one asset class - or in a figurative sense: do not put all your eggs in one basket. But what does the return on these asset classes look like? For example, an investment totalling €120,000 in an ETF savings plan with an investment horizon of 25 years:

What you should know about the fixed-interest period

When taking out a property loan, you can choose between fixed-interest periods of different lengths - usually 5, 10 or even 20 years. The interest rate remains guaranteed during this period. If you expect interest rates to rise in the future, you should secure the currently more favourable interest rate for as long as possible. After ten years at the latest, however, you can cancel your property loan at no additional cost and refinance the remaining debt at possibly better conditions, even if a longer fixed interest rate period was contractually agreed.

The purchase price/rent ratio

Rents have risen sharply in recent years, but the same applies to property prices. Is it still worth owning a property? The ratio between annual rent and purchase price helps you to assess whether a particular property is expensive or not. The factor is calculated by dividing the purchase price including ancillary costs by the annual cold rent for a comparable property. Here are two examples:

• A 100 square metre flat is offered for 359,000 euros. The basic rent for a comparable flat in the area is 1,000 euros, the annual basic rent is then 12,000 euros. This results in a purchase price/rent ratio of 29.91, i.e. the purchase price is almost 30 annual cold rents.

• A house with 150 square metres of living space costs 380,000 euros, the basic rent for a comparable property in the area is 1,300 euros. In this case, the purchase price/rent ratio is 24.36.

Properties with a purchase price-to-rent ratio of up to 25 are considered comparatively favourable. However, there is a clear difference depending on the location. While houses and flats in high-priced metropolitan regions often achieve values well above 30, properties in rural areas are often still available at a purchase price-to-rent ratio of around 20.

Tenants need to make more financial provisions

If you live in your own home or flat as an owner-occupier, you will not have to pay rent in old age and therefore have significantly lower costs - an important advantage, as the statutory pension alone is often not enough to ensure the standard of living you are used to after your active working life. If you decide to rent, you should definitely make additional provisions to ensure that you can afford the rent in retirement.

State-subsidised forms of pension provision

With the Riester pension and the basic pension, there are two state-subsidised forms of pension provision available. The subsidised Riester pension is particularly suitable for employees with children. In order to receive the full subsidy, 4% of gross annual income, including allowances, must be paid into the contract. The tax-privileged basic pension primarily benefits self-employed people who often earn well but are not covered by statutory pension insurance. In contrast to the Riester pension, the state does not subsidise savings here with allowances, but with extraordinarily high tax benefits.

Our tip: The state Riester subsidy can also be used to finance home ownership ("Wohn-Riester"). If you already have a Riester pension in savings, you can withdraw the accumulated balance, including the state subsidies, and use it to increase the equity capital for your property purchase. The annual savings and the allowances can be used to repay the loan in future and your property loan can be repaid more quickly. You can also use the Riester subsidy for your home loan and savings contract.

Opportunity-orientated saving with shares and funds

Those who also save on their own often invest in shares. With shares, you benefit from price gains and dividends. Even if shares can increase in value above the inflation rate in the long term, there is no guarantee, as the value of individual shares can fluctuate considerably. The investment should therefore be broadly diversified in order to reduce the risk - for example by investing in equity funds.

Buying property: how much equity do I need?

You generally need equity to buy a property. This therefore has a significant influence on the decision to "buy or rent". The more of your own funds and other assets you contribute, the less credit you will need to finance your dream property. In addition, your equity has an influence on the interest that accrues on repayment - the higher the equity ratio, the greater the certainty that you will be able to repay the loan reliably. The lender rewards this security with a more favourable interest rate.

Rule of thumb: you should be able to raise 20 to 30 % of the total costs from your own funds so that the ongoing burden of the loan remains manageable. Before deciding to buy, realistically estimate how much equity you are likely to have available.

Full financing without any equity is possible if you have a high and secure income with which you can reliably repay even a large loan. Overall, however, 100% financing is risky, which is why only a few institutions offer full financing.

What loan instalment can I afford?

The decision for or against buying a property depends on the price, but also on your financial situation. Have you already worked out your equity and would like to know what monthly repayment instalment you can afford for your mortgage? Compare all your monthly income and expenditure in a budget calculation. This will give you an overview of your financial framework and the loan instalment you can service each month. Additional expenditure often comes unexpectedly - for example, if your car suddenly breaks down or your holiday becomes more expensive than planned. You should therefore calculate your budget with a safety buffer of 5 to 10 %. And remember: the lender will usually also ask you for a budget statement - this is the only way they can be sure that the instalments for the loan you have applied for really fit into your budget.

Our tip: The monthly repayment instalment of your property loan should not exceed 40% of your household income. This ensures that you can still pay the instalment without any problems even in the event of temporary financial bottlenecks or unexpected costs.

How high should the maintenance reserve be?

If you are planning to buy a property, in addition to the repayment instalment for the mortgage, you should also consider the costs of maintaining your home, as properties require repairs and renovations over the years. To avoid financial difficulties in the event of an emergency, property buyers should always build up a maintenance reserve. How high this annual reserve needs to be depends on individual factors such as the age, condition, construction, fittings and size of the property. As a rule of thumb, building experts recommend the following values:

Homeowners' associations in apartment blocks often decide jointly on the amount of the annual maintenance reserve to be saved. The distribution among the parties is usually based on the amount of the co-ownership share; the size of the individual flats is often used as the distribution key.

Our tip: When buying a flat in a block of flats, make sure that the community of owners has saved a maintenance reserve that corresponds to the condition of the building. If the reserve is too low, the owners will quickly be faced with expensive special levies when renovation work is due.

Conclusion: buying vs. renting

The question of whether you should buy or rent a property is complex and very individual and cannot be answered in general terms. As described in the text, many factors play a role in the decision: financial possibilities, regional characteristics, the market situation and personal preferences are just some of the reasons. Ultimately, you need to weigh up all the pros and cons carefully and do the maths. Only then can you make your decision. We will be happy to support you on the way to your own four walls or in your search for a rental property.