Real Estate Financing in Austria
By Raffaela Lödl-Klein and Mario Kapp, KAPP & PARTNER Rechtsanwälte GmbH
The real estate market in Austria is flourishing; both the volume of sales and the value of sold real estate have increased continuously in recent years. Further growth on all fronts is expected for 2019: more demand and higher prices, though only a minimally growing supply side, especially with regards to land for building and single-family homes. The choice of the right type of real estate financing is of key importance in this context.
Types of financing and providers
The reality of many Austrians when they contemplate purchasing real estate is that they “have to save up for a long time and repay loans and credits all life long, on time, until they go into retirement”.
In Austria, the private home is usually financed on a long-term basis. Currently we are in a long-lasting, low-interest phase, whereas real estate prices are high. Typical providers of real-estate financing facilities are banks, which are subjected to strict banking regulations. Financing options comprise own-capital resources, subsidies from the provincial government (these differ from one province to the next) or financing by a bank or building society.
To make the dream of owning their own home come true, most Austrians resort to real estate financing by banks in the form of a mortgage.
The mortgage loan
A mortgage loan is a loan provided by the bank to its customers for the purpose of purchasing real estate. In turn, for the provision of the loan, the debtor grants the bank a lien on the property (owner-occupied flat, house, commercial property) by way of security. The lien – the mortgage – is entered in the land register and authorises the bank to sell or exploit the property if the loan is not repaid as agreed.
Thus, being intensively secured, a mortgage loan is one of the longest running and cheapest types of loan. In addition to the owner, the bank is also inscribed in the land register. Once the loan has been fully repaid, the entry is deleted.
Interest and term of the loan
The loan is repaid in regular (monthly) instalments; repayment at term end and premature special repayment are usually a possibility. The term for the repayment of the loan is between 10 and 40 years.
The interest rates are usually variable and linked to the refinancing rates (EURIBOR), regularly adjusted to the market interest. It is also possible to agree fixed (but higher) interest rates. The interest rates of mortgage loans are currently relatively low (around 3.5% for a mortgage with a term of 25 years), but pay attention to relatively high additional costs (account maintenance fees and handling fees of approximately 1–2.75% of the loan amount).
Loan amount / share of own capital
The amount of the loan and the required amount of own capital depends on individual circumstances (i.e., the value of the mortgaged real estate). Most banks will be prepared to grant a mortgage loan corresponding to 80% of the total value (and expect a contribution of 20% in own capital). However, a higher rate of own capital translates into a lower loan amount and more favourable interest terms since the bank also has a smaller default risk. All monetary assets the buyer is entitled to dispose of, for example cash, shares and stock, can be used as own capital.
Non-performing loans: What happens if the loan is not repaid?
If the failure to make repayments is due to a short-term liquidity bottleneck, the banks are usually accommodating (temporary reduction, deferment). However, in the worst case, the bank can repossess and force-sell the house by way of a judicial procedure. In this case, the revenue from the sale goes towards repaying the outstanding debt. But this is a last resort; as a general rule, the banks will try to find a solution together with the debtor.
The trade with portfolios of nonperforming loans (NPLs) by banks is now also a recognised and established transaction type in Austria. In this segment and, in particular, cross-border cases, our firm is co-operating very successfully with other GGI members.
Mario KappKAPP & PARTNER Rechtsanwälte GmbH, Graz, Austria
T: +43 316 22 59 55
KAPP & PARTNER Rechtsanwälte GmbH has four partners and five associates and has an outstanding reputation for bankruptcy law in Austria. The law firm is mainly focused on bankruptcy law, reorganisation law, company restructuring, commercial law, banking law, real estate law and international law.
Mario Kapp was the sole founder of the law firm in 2006. He is Managing Partner and specialises in bankruptcy law, corporate law and business restructuring.
Raffaela Lödl-KleinKAPP & PARTNER Rechtsanwälte GmbH, Graz, Austria
T: +43 316 22 59 55
Raffaela Lödl-Klein is Managing Partner of KAPP & PARTNER Rechtsanwälte GmbH situated in Graz, Austria, and specialises in real estate and corporate and insolvency law. She joined the firm in 2013.
Published: Real Estate, No. 09, Spring 2019 l Photo: Eva Bocek - stock.adobe.com