Financing of conversion plans: Building savings for house renovation

With rising interest rates, building savings is becoming attractive again – not just for home builders. There could also be a boost in the energetic renovation of houses. But there are also risks.

For years, a home loan and savings contract was not just outdated, it was simply not worth it. In times of low or zero interest rates, it was not necessary to first save money in order to then get a loan at an agreed interest rate. The money was almost given away at the banks anyway. But that is changing, confirms Sebastian Flaith from the largest German building society Schwäbisch Hall. “Demand is increasing. You can tell that we’re back to the old normal. There’s a market interest rate, and it’s somewhere between three, four and five percent.”

The interest on loans for home loan savings was actually always cheaper than the market interest rate. “And that’s exactly the situation we’re in again,” said Schwäbisch Hall spokesman Flaith.

Interest rates are likely to rise further

If you believe market experts like real estate economist Günther Vornholz from the EBZ Business School in Bochum, this is just the beginning. “I can already see the prospect that construction interest rates, which have risen sharply in recent months, will continue to rise,” said Vornholz tagesschau.de. The reason for this are the central banks, which are likely to raise interest rates further to combat inflation.

In this environment of prospectively rising interest rates, the principle of the home savings contract – which combines a savings plan with a real estate loan – comes into play. First, you pay in monthly until the agreed home savings sum is reached, for example 40,000 euros. Only then does the bank give you the same amount as a loan at a predetermined interest rate.

Saving money also costs money

However, there are hidden costs, warns Niels Nauhauser from the consumer advice center in Baden-Württemberg. “Because first of all you have to pay an entrance fee, that’s the closing fee for the home savings contract. And it’s higher the larger the sum of the home savings contract is,” says Nahauser.

In addition, there are ongoing account management fees, and you get practically no credit interest on the amount you save. “And at some point, that’s the hope, you’ll have a cheap loan claim. But whether it will be really cheap or not, that will be shown by interest rate developments.” For this reason, the Baden-Württemberg consumer advice center recommends smaller sums for building society savings, which can be used to modernize a residential property, for example.

Refurbishment obligation until 2030

The trend can already be observed at Schwäbisch Hall, according to the building society. According to Flaith, two-thirds of the building society savings in Germany go into the real estate portfolio – i.e. into the renewal of the heating technology or the roof.

According to Schwäbisch Hall, many coveted new purchases such as heat pumps are financed from financial reserves. Due to rising energy costs, they are now slowly but surely disappearing in many households. Therefore, Flaith assumes: “When the cash reserves are used up, it goes in the direction of a home savings contract.” And so the building savings contract, which is considered boring, could give the energy transition a boost – especially since particularly inefficient houses have to be renovated by 2030 according to EU specifications.