Bausparvertrag Explained for Expats: The German Savings Plan for Homebuyers.

The Bausparvertrag is a popular German savings plan for homebuyers. If you're considering buying property in Germany, it's essential to understand how the Bausparvertrag, and the linked government benefits, could benefit and help you.

What is a Bausparvertrag?

A Bausparvertrag, or building savings contract, is a financial agreement between an individual and a building society. It combines savings with a low-interest loan, designed to help people save for a home.

Typically, you save a fixed amount each month until you reach a certain threshold, after which you become eligible for a favourable home loan to finance your property purchase.

Government Subsidies

For those below the income threshold of €40,000 for a single person and €80,000 for a married couple, the government offers various subsidies to encourage saving for a home. These subsidies can substantially affect how quickly you can accumulate savings and qualify for the favourable loan rates offered by the Bausparvertrag. These include:

Wohnungsbauprämie: This is a housing construction premium where the government contributes a percentage of your annual savings towards your Bausparvertrag. This subsidy can significantly boost your savings over time.
Arbeitnehmersparzulage: If you're employed, you might be eligible for this subsidy, where the government matches a portion of your savings. This is particularly beneficial for lower and middle-income earners. At the beginning of the year, the German government increased the income limit for eligibility, making it more accessible for a broader range of households.

The previous income threshold for a single person was 17,800, and this has now increased to 40,000. For a married couple, the previous threshold was 35,000, but this has now changed to 80,000. This is great news for those who were previously not eligible, but due to the huge increase in the threshold, now are, making this savings plan more accessible and beneficial for a wider range of households in Germany.

Benefits for Higher Earners

Even if your household income exceeds €80,000, the Bausparvertrag can still be an excellent tool for financial planning and property investment. Here’s why:

Low-Interest Loans: The primary advantage of a Bausparvertrag is access to low-interest loans for home financing. Even without the government subsidies, this can be a financially sound way to secure favourable loan terms for purchasing property.
Financial Discipline: The Bausparvertrag encourages regular savings, instilling a disciplined approach to setting aside funds for future investments. This can be particularly beneficial for higher earners looking to manage their finances strategically.
Tax Benefits: Depending on your circumstances, tax advantages might be associated with the interest paid on your savings and the loan you eventually take out. Consulting with a financial advisor, such as Granite Financial, can help you maximise these benefits.