Test Reveals Flaws in Banking Advice for Homebuyers: Only Four Out of 19 Institutions Rated ‘Good’

For many people, buying a house or apartment is the greatest thing they can ever afford. Of course, you hope that you will get competent advice from banks and credit brokers. As a practical test by Stiftung Warentest shows, this is not always the case.

For many people, the search for an apartment or a house is extremely tedious. Once the dream property has been found, the potential buyer faces the next hurdle – building financing. After all, very few can afford to buy a property without external financing. So a loan is taken out from a bank or a credit broker – after all, this is where the people with the necessary money or expertise can be found. Or something not? At least in the second point, customers should not blindly rely on the advice. This is shown by a hidden practical text from Stiftung Warentest from a total of 19 regional and national building loan providers.

The conclusion of the test is sobering: only four of the 19 institutions tested achieved the grade “good”. The majority had to be satisfied with the rating “satisfactory”, while one provider only achieved the grade “sufficient”.

Banks and credit intermediaries put to the test: This is how the test went

But how exactly did Stiftung Warentest proceed with their test case? Between February and October 2022, the consumer organizations sent test subjects to consult with the 19 home loan providers. The imagined scenario always remained the same: A married couple (aged between 28 and 48) plans to purchase an apartment for their own use. All of the documents needed for the consultation on equity, such as daily and fixed-term deposits, shares, fixed-income securities and financial support from the parents, were always available. The test persons also always stated that they were able to cover the additional costs and around 15 percent of the purchase price with their own funds. They also stated that their net income, minus living expenses and housing allowance, was sufficient for a loan repayment rate of at least two percent per year. The purchase price of the supposed property fluctuated in the scenario between 350,000 and 750,000 euros, depending on the region. With the exception of two cases, a total of seven different consultations were held for each lender, so that a total of 131 consultations were held with the test persons. These were then evaluated using log sheets and offer documents issued by the credit providers.

These factors were included in the assessment

What was rated? The focus of the practical test (75 percent) was on the quality of the offer made by the bank or the credit broker. In other words, whether the financing proposal also matched the financial situation of the testers and whether the proposed loan was adequate, too high or too low. The cost of the loan was also included in the assessment, as was the flexibility of repayment, for example whether special repayments were possible.

In addition to the quality of the offer, the foundation also looked at how well customers were informed, whether all the necessary information was given and whether the testers received a well-arranged list of the overall financing at the end of the consultation. Finally, the circumstances of the consultations were also included, for example whether appointments were postponed or interrupted.

Sobering conclusion

After more than 130 consultations at 19 different banks and credit brokers, the conclusion of the Stiftung Warentest speaks volumes: “You can often not rely on the advice of a mortgage lender,” quotes the star from the evaluation. Sparda-Bank Baden-Württemberg emerged as the winner from the evaluation with a grade of 2.1, followed shortly afterwards by Hypovereinsbank with 2.3. Good conditions and coherent financing concepts ensured the good rating. The credit brokers Interhyp and Dr. Klein followed with 2.4 and 2.5, also with good grades. The Hamburger Sparkasse brought up the rear of the evaluation, with which the consumer organization determined “chaos financing”.

Numerous deficiencies noted

What shortcomings led to the majority of the loan providers tested being so mixed? Here, the foundation lists several reasons that led to a devaluation. There have been cases in which the loan amount was too low. An additional loan was therefore necessary, which in turn was unsure whether this would also be granted. On the other hand, some consultants have overestimated the loan amount, which unnecessarily increases the interest rate due to the high loan-to-value ratio. Another lack of advice affected the monthly rate. For some providers, this has been set too low, which means that the interest costs are higher and the debt is only slowly decreasing. In other cases, the fixed monthly rate would have been so high that it would have exceeded the possibilities of the test subjects. The rating was also worse if the expected total term of the loan was not given, the credit information was generally insufficient so that it was not possible to compare different offers, the loan was simply too expensive, or the interest rate risk was not taken into account for the follow-up loan.

Customers cannot avoid good preparation and follow-up

In order not to become the victim of incorrect advice, Stiftung Warentest advises loan seekers to prepare for and follow up on the advice. So you should know before the consultation how much equity you can use to buy a property, how high the loan should be and what monthly installments you can afford. You should also think about whether you can and want to make use of special repayments and know the market interest rate, as t-online writes. Don’t be afraid to ask questions during the consultation if you don’t understand something. After the consultation, it is also worth obtaining and comparing other offers. Before the purchase contract for the property is signed, however, the construction financing should be in place and there should be a binding commitment from the lender.

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