Endurance

Sustained Repayment Capacity - Sustained repayment capacity refers to a borrower’s long-term ability to consistently cover the ongoing costs of a mortgage-interest, principal payments, and maintenance costs-from their regular income. Banks assess long-term repayment capacity as part of the creditworthiness review and ensure that the borrower remains solvent even under changed conditions (rising interest rates, declining income).

Assessment Criteria

The bank determines long-term repayment capacity using an income and expense statement:

• Income: Net salary, regular rental income, child support, and recurring supplementary income - only sustainable income components are considered; one-time payments (bonuses, premiums) are only included on a pro-rata basis
• Expenses: Living expenses (flat rate or individual calculation), existing loan payments, alimony obligations, insurance premiums, ongoing savings plans
• Debt Service Capacity: The disposable income after deducting all expenses must cover the monthly payment on the new loan plus a safety buffer (typically 10-15%)

In addition, many banks calculate a stress test: How does the monthly payment change if the interest rate rises to 5-6% after the fixed-rate period ends? This stress test protects both the bank and the borrower from a situation where an interest rate hike after the fixed-rate period drives the monthly payment to an unsustainable level. We recommend performing this calculation yourself before submitting your first loan application to a bank.

Regulatory Background

Since the Residential Mortgage Credit Directive (WIKR) of 2016, banks have been legally required to comprehensively assess consumers’ creditworthiness before granting a loan-with a particular focus on long-term repayment capacity. If borrowers can demonstrate that their financial situation is sufficiently stable, the bank may not reject a loan solely on the basis of a low or negative loan-to-value ratio. Conversely, the WIKR requirement to assess long-term repayment capacity protects consumers from over-indebtedness that may not become apparent until years after the contract is signed-a step forward compared to practices prior to the 2008 financial crisis, when loans were often granted too loosely.

Significance for Loan Approval

Sustained repayment capacity is the second key criterion for granting a loan, alongside the property’s loan-to-value ratio. Even with a sufficient loan-to-value ratio, the bank will reject a loan if sustained repayment capacity is not demonstrated. Conversely, above-average sustained repayment capacity can lead to better terms and a higher financing limit.

Overview of Income and Types of Income

When assessing long-term repayment capacity, banks distinguish between different types of income with varying degrees of security:

Salaried employment (permanent employment contract): The most secure form of income-typically considered at 100%. Fixed-term employment contracts are evaluated with deductions or upon presentation of renewal commitments. Self-employed and freelancers: Only sustainable profit, determined from income tax returns for the last two to three years. Significant fluctuations in income result in deductions. Rental income: Typically considered at 70-80% to account for vacancies and maintenance costs. Pensions: Are usually taken into account in full, as they are permanent and predictable.

Long-term financial capacity - Calculation example: Nuremberg household (2 adults, 1 child)

Item	Amount/Month	Note
Net income Person 1 (permanent position)	+ €3,200	Full-time employee
Net income Person 2 (part-time)	+ €1,400	60% position
Child benefit	+ €255	1 child
Total income	€4,855
- Living expenses (2 adults + 1 child)	- €2,100	€850 + €850 + €400 flat rate
- Existing car loan	- €280
- Savings rate	- €200
Available for mortgage	€2,275
- Bank safety buffer (15%)	- €341	Bank standard
Max. eligible payment	€1,934
Corresponds to loan amount (3.5%, 30 years)	approx. €420,000	No down payment required

Practical Tip for Homeowners in Nuremberg and Franconia

We recommend that prospective buyers in the Nuremberg metropolitan area calculate their long-term affordability themselves before searching for a property: Note down all monthly net income and all fixed expenses-the difference is your maximum monthly payment. Calculate conservatively: Assume at least €850-1,000 per adult and €350-400 per child for living expenses. Also plan for a buffer against rising interest rates after the fixed-rate period ends-with a 20-year financing term, you should still be able to manage even at a 5% interest rate. This way, you’ll avoid excessive debt and can present a solid financial profile when negotiating with the bank.

Frequently Asked Questions

What percentage of my income can the loan payment be?

As a rule of thumb, the total monthly burden from all loan obligations should not exceed 35-40% of your net household income. Banks sometimes accept higher ratios for high incomes (over 5,000 euros net), but they are stricter for lower incomes. A payment of 1,500 euros on a net income of 4,000 euros (37.5%) is typically acceptable if there are no other loans and living expenses are estimated realistically. Important: Many banks use internal flat rates for living expenses, which can differ significantly from actual living costs. If your actual living expenses are lower than the flat rate, it’s worth presenting a detailed household budget and providing proof of individual expenses.

What happens if my income drops after the loan is granted?

The bank cannot terminate the loan solely due to a drop in income as long as the payments are made on time. If you encounter payment difficulties, you should immediately seek a proactive discussion with the bank-payment deferrals, reduced installments, or extended terms are often possible and prevent the situation from escalating to termination. In a crisis, the rule is: Early communication is always better than waiting in silence until the first reminder. Additionally, residual debt insurance (RSV) can cover part of the installment payments in the event of unemployment, disability, or the death of the primary breadwinner-however, RSV is often expensive, and the terms of coverage should be carefully reviewed before taking out a policy.

Do rental income count toward long-term affordability?

Yes, but banks typically only count 70-80% of rental income to cover vacancy risk, non-pass-through operating costs, and maintenance expenses. For a monthly rent of 1,000 euros, the bank therefore only counts on 700-800 euros in sustainable income. If you have multiple rental properties and a documented rental history spanning several years, banks may also accept a higher valuation. Anyone who includes rental income as a significant part of their long-term earning capacity should provide the bank with current lease agreements, bank statements from the last twelve months, and, if necessary, a vacancy history-this allows for a higher rate than the standard flat rate to be substantiated.

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