Taking out a construction loan through a building savings contract is one of the most popular forms of financing in Austria. There are many reasons for this, but one of the most important is undoubtedly the trust that customers place in bausparkassen. Also the usually favorable conditions and the transparent system, provide for a large popularity. To understand what constitutes a home loan, let's start with the differences between a conventional home loan and one managed through a home loan contract.
Building savings loans and conventional financing – the differences
Under a conventional financing for a real estate, one understands a bank loan. These are usually concluded with terms of more than 20 years. The conditions depend very much on the creditworthiness of the customer, the object of financing, the own funds and the term of financing.
With the building savings contract to own home
At the same time, it is hardly possible in Austria to compare construction financing directly and objectively with each other. Banks treat financing requests too individually. For example, there are banks that provide construction financing without the customer's own funds (assuming a corresponding credit rating), while for other banks this would be a complete exclusion criterion.
Different requirements apply to construction financing via a home savings contract. Every customer who is eligible for a so-called bauspar loan receives the same conditions. The interest rate charged by the building society is also fixed.
In addition, the customer receives an included interest rate cap of 6%. This means the customer knows from the outset that his effective interest rate will never go higher. In case of a bank loan, such a limit would have to be realized either with a fixed interest rate (which is at the expense of a favorable condition) or an extra purchased interest rate cap.
The disadvantage of a construction financing with a building savings contract, especially for customers with a very good credit rating, is that the initial conditions cannot keep up with those of a favorable bank. However, if the interest rate ceiling is taken into account, this difference can quickly become relative.
Bausparkassen are also very strict when it comes to the equity ratio. It must be at least 20%, otherwise it is very difficult to get a commitment. This circumstance can be escaped, however, if one carries out a so-called mixed financing, to it later something more.
The total amount of financing is in the case of building savings financing with € 180.000 per person. If one finances to second are thus € 360.000,-.
The differences between bauspar loans and bank loans
The advantages and disadvantages of building savings financing
Viewed in detail, the peculiarities just described result in a number of advantages and disadvantages with classic bauspar financing:
- Interest rate cap
- Same conditions for all customers
- Possibility to pay only interest at the beginning (mostly up to 24 months)
- With a good credit rating, bank financing may be more favorable
- Interest rate floor of 2%, no matter how low the prime rate is
- Maximum financing amount limited
- No financing without own funds
In general, it can be said that construction financing with a building savings contract brings a high level of security, which is paid for a somewhat higher condition. This applies, however, only if one has a corresponding credit rating, which allows a more favorable bank financing in the first place.
The hybrid of both worlds
Many customers opt for a combination of a building society loan and a bank loan. This gives different customer groups their own advantages.
House building customer with top credit rating
Customers with a good credit rating are free to choose the financing they require.
This customer can choose his financing financial institution freely on the market and receives the best conditions based on his creditworthiness. It has a high share of own funds. The total volume of financing is very high.
With a mixed form of own funds, building society loan and bank financing, this customer benefits on the one hand from the good conditions of the bank, but on the other hand also protects himself against rising interest rates with the building society loan. The decision how much building savings loan to use, the customer can choose entirely according to his risk strategy. So he looks at the financing more like a form of investment and tries to achieve the lowest cost at moderate risk.
Advantage for the customer:
- Good conditions with the bank loan
- Security against rising interest rates
- Allocation according to own discretion
House building customer with medium credit rating
This customer has a medium credit rating and low own funds. He gets very different offers on the market for the bank loan. Each bank assesses his creditworthiness specially.
The mixed form will include as much building society loan as possible. This customer might have financial difficulties if interest rates rise much above 6%. Therefore the building society loan is considered for him as safe financing for his real estate. Due to the small amount of own funds, the customer may be forced to compensate a part through financing from a bank. The big advantage for him, is the high security of his financing.
Advantage for the customer:
- Security against rising interest rates
- Through bank loan share is Bauspararlehen only possible
Typical distribution of a mixed financing
The interest rate cap – still relevant?
The interest rate cap helps in difficult times.
The much-discussed interest rate ceiling in the bauspar loan can be heard in the media again and again. The reason for this is a regulation in the Bauspargesetz which was enacted in 2015. The interest rate cap for loans taken out after September 2015 is only granted for 20 years. One has thus for 20 years the security of the 6%, only thereafter is the interest rate on the "free market". Considering the constant inflation, this should only be a problem for the fewest borrowers. One's own salary has increased significantly in 20 years and will be able to cover any increase in interest rates. In addition, most borrowers are finished with their financing after about 20 years because it was paid off early. The reason for this is, among other things, inflation and the accompanying collective salary increases.
Currently, the interest rate cap is not so much in demand on the market anyway, because we are in an absolute low-interest phase. Currently, the acute likelihood of interest rates rising above 6% is unlikely to occur. Since it concerns with building financings however a long-term project, the future of the interest is for nobody also only in the remotest way assessable.
The building savings contract as a basis for the building savings loan
The classic building savings contract is still one of the most popular forms of savings in Austria. The reason for this is certainly the state premium, which is distributed once a year on the contracts. The principle of the building savings contract states that all investors pay into a pot together. As soon as the sum is large enough, a lot decides which investor gets his loan sum first. He then continues to pay into this pot until his loan has been paid off. This principle is still valid today, but the bausparkassen have created a very customer-oriented settlement model through many internal mechanisms.
It is quite possible today to obtain a building society loan without an existing building society contract. In the background, a building savings contract is then created for this customer and offset against it. It should be noted, however, that the typical peculiarities of the bauspar loan, such as the interest rate cap, only apply after the so-called allocation. This is usually between 1.5 and 2 years. If you already have a building savings contract with deposits, you can skip this allocation period and immediately take out the actual building savings loan.
Covering the construction financing with a building society loan is a safe bet even in today's interest rate situation. Conditions can sometimes be higher than at the bank, but the integrated interest rate cap is worth a lot in return. Many customers resort to blended financing that combines home savings loans and bank financing. The processing of a building society loan is already very simple today and should best be carried out together with a financing advisor.