How much equity do you need for a mortgage?

Within own funds a distinction is made between “hard” equity and other equity. At least around 10 percent of the purchase price must come as “hard” equity that does not originate from pension assets. This includes cash, savings, securities, surrender values from life insurance policies, balances from non-repayable private contributions as well as demonstrably gifted or inherited amounts. Pension assets from the occupational pension (Pillar 2) or from Pillar 3a are considered pension capital and do not count toward this 10 percent quota.

The remaining own funds beyond the 10 percent threshold can come from various sources. Possible options are early withdrawals from the occupational pension within the framework of the home ownership promotion (Wohneigentumsförderung, WEF), pledging occupational pension assets, withdrawing or pledging Pillar 3a funds, as well as gifts or advance inheritances. Each route has different tax and pension-law consequences. For example, an early withdrawal reduces future pension benefits, while pledging protects the pension but can lead to stricter amortization requirements.

Affordability is also important. Even if sufficient equity is available, lenders check whether the ongoing housing costs remain affordable under a higher assumed interest rate. To do this they conservatively calculate with imputed interest, amortization of second-ranking loans and flat-rate maintenance costs. Providing more equity reduces the loan-to-value ratio, often improves terms and increases robustness against market fluctuations.

When budgeting you should consider incidental costs, future maintenance and renovation expenses and reserves for unforeseen events. Especially with older properties, additional investments often arise in the first few years. Planning a buffer early avoids later bottlenecks and preserves financial flexibility, even if interest rates or life circumstances change.

A practical approach is: first document available own funds clearly, then secure the 10 percent rule without using pension assets and only afterwards decide whether pension assets should be used to top up or pledged. This keeps the financing affordable while protecting pension assets as much as possible.