Solvency (Financing)

Affordability (Financing) - The affordability of a mortgage refers to the borrower’s ability to consistently cover the ongoing costs of interest and principal payments from their income-not only today, but also in the event of changes in life circumstances and throughout the entire term of the loan. Banks assess affordability as part of the creditworthiness check (Section 18a of the German Banking Act) and calculate whether the household income, after deducting all living expenses and other liabilities, can sustain the loan payments over the long term.

Calculating Affordability

Banks calculate affordability using a household budget. The calculation method:

1. Net income (all regular sources of income after taxes): salary, rental income (with a safety margin), pension income, investment income
2. Minus living expenses: A flat rate of approx. 900-1,100 euros for single individuals, plus approx. 400-600 euros per adult in the household and 200-300 euros per child
3. Minus existing loan payments: Consumer loans, lease agreements, other mortgage loans, alimony payments
4. Minus ongoing maintenance costs for the property to be purchased: Condominium fees (for WEG properties), non-apportionable operating costs, maintenance reserve (recommended: 1-1.5 euros/m²/month)
5. Result = maximum affordable loan payment

As a rule of thumb: The total monthly burden from loan payments and housing-related expenses should not exceed 35-40% of monthly net income. With a net income of 4,500 euros/month, that would amount to a maximum of 1,575-1,800 euros for interest and principal payments. At an interest rate of 3.5% and a principal repayment rate of 2%, this results in a maximum loan amount of approximately 290,000-330,000 euros.

Bank Stress Tests

Since the Residential Property Credit Directive (2016), banks have been legally required to assess affordability not only under current conditions but also under stress scenarios. The rationale: Financing that is affordable today may become unaffordable after the fixed-rate period ends if interest rates have risen.

Banks calculate the payment using a stress interest rate-currently usually 6-7%-and check whether the household could still afford the financing even at this interest rate level. For a loan of 300,000 euros and a stress interest rate of 6%, the monthly payment (with a 2% principal repayment) would be approximately 2,000 euros-if this exceeds 40% of the household’s net income, the bank reduces the maximum loan amount or requires a higher down payment.

This stress test requirement means that many buyers receive less credit than expected-especially in high-price regions like Nuremberg, where purchase prices in recent years have pushed many households’ affordability calculations to the limit.

Affordability for the Self-Employed and Freelancers

For self-employed individuals and freelancers, the affordability assessment is more challenging because income fluctuates. Banks typically calculate eligible income as the average of the last two to three tax years-poor years lower the eligible income base. Additionally, many banks require additional collateral or a higher equity stake.

We recommend that self-employed individuals speak with several banks and independent financial advisors early on, as the assessment of self-employment income varies significantly from institution to institution.

Practical Tip for Homebuyers in Nuremberg

We recommend that prospective buyers in the Nuremberg metropolitan area realistically calculate their own affordability before starting their property search-not only after they’ve found their dream home. Create an honest household budget that includes all ongoing expenses and factor in a safety buffer of 10-15% below the maximum affordable amount. This buffer is essential for unforeseen expenses, renovations, temporary vacancies when renting, and lifestyle changes (planning to have children, caregiving responsibilities, job changes).

With an average net household income in Nuremberg of approximately 3,500-4,500 euros, this results in a maximum monthly payment of approximately 1,200-1,600 euros-which, at current interest rates and a 2% principal repayment, corresponds to a loan amount of approximately 220,000-290,000 euros. Adjust your property search to this reality from the start, rather than letting yourself be lured by your dream home into financially risky over-financing.

Frequently Asked Questions

What percentage of income should the monthly payment represent at most?

As a rule of thumb, 35-40% of your monthly net income is considered the maximum amount you should spend on housing costs, including utilities. More conservative estimates recommend 30% to maintain sufficient flexibility for savings, unexpected expenses, and lifestyle changes. In high-cost regions, some banks may accept up to 45% for borrowers with very high and stable incomes (civil servants, doctors, executives). Important: Always calculate the total cost-that is, the loan payment plus utilities (approx. 2-4 euros/m² of living space/month) plus the maintenance reserve.

What to do if affordability is insufficient?

If the desired financing exceeds your affordability, there are several realistic options: contribute more equity (reduces the loan amount and payment), look for a more affordable property, or initially buy in a less central location, include a second borrower (spouse, partner), take advantage of government subsidies (KfW subsidized loans with more favorable terms, BEG subsidy programs for properties eligible for energy-efficient renovations), or reduce the principal repayment rate to 1.5-2% (increases affordability but extends the loan term and carries refinancing risks).

Are rental income taken into account in the affordability calculation?

Yes, for rental properties, banks include rental income in the affordability calculation, but with a safety margin of 20-30% (to account for vacancies, rent defaults, non-recoupable repair costs, and administrative expenses). So, for an expected base rent of 1,000 euros, the bank only counts 700-800 euros as eligible income. The difference between the loan payment and the countable rent must be covered by other household income. For well-rented properties in Nuremberg locations with stable rental demand, the discounts are justified but rather conservative-in practice, most well-located properties are managed without vacancies.

Affordability and Refinancing Risk

A frequently underestimated risk in the affordability assessment is the refinancing risk: Anyone financing a property today with a ten-year fixed-rate period must refinance at the prevailing market rates once the fixed-rate period expires. A financing arrangement that is barely viable today at a 3.5% interest rate and 2% principal repayment may exceed the viability threshold if the renewal rate is 5-6%. We therefore recommend calculating a renewal scenario with a 5.5% interest rate when making a purchase decision and verifying whether the payment would still be affordable from household income.

For buyers in Nuremberg with a net household income of 4,000 euros, a rollover interest rate of 5.5% on a loan of 280,000 euros (2% principal repayment) results in a monthly payment of around 2,217 euros-equivalent to 55% of net income, which is well above the affordability threshold. Those who recognize this risk early on can take countermeasures: through higher initial principal payments (to reduce the remaining debt at renewal), through special prepayment options, or through a longer fixed-rate period (15-20 years), which defers the renewal risk to a later date.

Which banks in the Nuremberg metropolitan region offer the best affordability terms?

Affordability assessments vary considerably from bank to bank-both in methodology and in risk tolerance. Sparkasse Nürnberg, Volksbank Raiffeisenbank Nürnberg, and regional private banks sometimes apply different flat rates for living expenses and different evaluation criteria for the self-employed than large direct banks. Independent mortgage brokers who have access to multiple institutions can compare options to determine which bank offers the most favorable terms and the greatest flexibility for a given income and credit profile. We collaborate with certified mortgage advisors in the metropolitan area and are happy to put you in touch with them.

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