International banks & real estate

What buying actually costs, country by country

The asking price of a home is never what it costs. In the Netherlands, acquisition costs run at about 2 to 3 per cent of the price because transfer duty is low and the agency commission is paid by the seller. In the United Kingdom, Stamp Duty is progressive: nothing below a threshold, then bands that climb quickly, so a flat in Manchester and a house in London face very different effective rates. In France, an existing home costs 7 to 8 per cent once registration duties and notary fees are counted, against 2 to 3 per cent on a new build where VAT is already in the price.

Germany sits at the other end: the Grunderwerbsteuer runs from 3.5 to 6.5 per cent depending on the Land, with the notary, the land registry and, on resale, an agency commission now shared between buyer and seller. The total often exceeds 10 per cent. Belgium and Spain are in the same range, Italy depends on whether the property is a main residence, and Switzerland varies so much between cantons that the same transaction can cost twice as much in Geneva as in Zug.

Those gaps weigh more than half a point of interest. On a property at 300,000, moving from 3 per cent to 10 per cent in fees means 21,000 to find in cash on the day of signature, a sum no bank lends and which sits on top of the deposit. It is the first thing to check before comparing monthly payments, and it is what every simulator on this site calculates first.

How a monthly payment is built, and what it hides

The formula is the same everywhere: the amount borrowed, the periodic rate and the number of instalments produce a constant payment whose composition changes over time. Early on, most of it pays interest on a still-large balance; at the end, most of it repays capital. On a twenty-year loan, more than half the total interest is paid in the first seven years, which is why an early repayment is worth far more at the start than at the end.

Two elements routinely escape the calculation. Borrower insurance first: expressed as a percentage of the original or of the outstanding capital depending on the country, it runs between 0.10 and 0.50 per cent a year and can weigh as much as half a point of interest over the term. Then the arrangement, guarantee and brokerage fees, which are either added to the capital or paid up front depending on the lender.

This is why the headline rate is not enough to compare two offers. The annual percentage rate, APR in the United Kingdom and the United States, TAEG in France, effektiver Jahreszins in Germany, includes those costs and is the only figure that makes two proposals comparable. A loan advertised at 3.10 per cent with heavy fees costs more than one at 3.25 per cent without them, and only the APR shows it.

Borrow now or wait: what the figures say

The question returns with every cycle, and the answer depends less on forecasts than on two concrete trade-offs. The first is the cost of waiting: if prices rise 3 per cent while you hold off, a property at 300,000 costs 9,000 more, which more than cancels the gain from a quarter point of rate over twenty years. The second is reversibility: a rate can be renegotiated or refinanced if rates fall, whereas a purchase price is final.

In countries with long fixed rates such as France, Belgium and the Netherlands, borrowing at a high rate is therefore less risky than it looks, since refinancing captures any future fall. In countries with variable or short-reset rates such as the United Kingdom, Spain and Australia, the logic reverses: the monthly budget has to survive an increase, and the prudent rule is to model the payment with two extra points before signing.

The mistakes that cost the most

The first is to think in monthly payments rather than total cost. Extending the term lowers the first and inflates the second, and that is exactly what a seller puts forward when the budget is tight. The second is forgetting that borrower insurance is negotiable: for identical cover, an outside policy often costs half what the lender's group contract does, and the saving runs into thousands over the life of the loan.

The third is underestimating the recurring costs. Once the deed is signed there remains property tax or its local equivalent, service charges, home insurance and maintenance, which professionals estimate at around 1 per cent of the property's value a year. A home at 300,000 therefore costs some 3,000 a year before the first unplanned repair, a figure that appears in no mortgage simulation.

The fourth is comparing two countries on the interest rate alone. A country with low rates and high fees can cost more to buy into than one with higher rates and light fees, especially on a project resold after five to seven years. The right calculation adds the entry costs, the cost of credit over the term actually envisaged and the exit costs.

The fifth is signing without modelling the sale. In most countries it takes five to seven years before the capital repaid and any price growth cover the costs of entering and leaving. A purchase followed by a job move two years later almost always ends in a loss, however good the rate obtained. The expected holding period is therefore an input to the calculation, exactly like the price and the deposit. Every country page on this site gives the entry and exit costs that apply, so that minimum period can be calculated rather than guessed at, and so two countries can be compared on the same basis.