Equity ReleaseTopping Up Your Pension with Your Own Home

Model 1: Life Annuity (Leibrente)

You sell your property to a buyer and, instead of a purchase price (or in addition to a lump sum), receive a lifelong monthly annuity. At the same time, you keep a lifelong right of residence (Wohnrecht) secured in the land register (Grundbuch).

Advantage: predictable income for life, often secured by an insurance policy.
Disadvantage: if you die early, you have made a poor sale in economic terms; the house no longer passes to your heirs.

Model 2: Sale with Usufruct or Right of Residence

You sell the property for a lump sum and keep a usufruct (Nießbrauch) or right of residence. The purchase price is reduced by the value of the right (calculated by age and rental value).

Advantage: capital available immediately.
Disadvantage: depending on your age, the deduction can be considerable.

Model 3: Partial Sale (Teilverkauf)

You sell a share (usually up to 50%) to a provider, keep a usufruct over the whole house and pay a monthly usage fee for the share sold. On a later sale, the provider receives its share of the proceeds, often plus fees.

Advantage: you remain a co-owner.
Disadvantage: the total cost of usage fees, charges and maintenance (which often remains entirely with the owner) can be high. Consumer advocates recommend a careful comparison.

Model 4: Reverse Mortgage (Umkehrhypothek)

A bank pays you a loan secured by a land charge (Grundschuld). Interest and repayment only fall due on sale or on death. In Germany, this model is offered by only a few providers.

The Alternative: Sell and Move

Often the simplest solution is the best: sell the house that has become too large and move into a smaller, accessible apartment, bought or rented. The difference is freely available to you. This is often cheaper than any equity release model, but it requires a move. You can find suitable apartments under Accessible living.

What to Look Out For

1. Independent valuation: The value of your property determines everything. Have it determined independently of the equity release provider.
2. Compare total costs: usage fees, charges, maintenance obligations, deductions.
3. Check the security: Is your right of residence registered in first rank in the land register? What happens if the buyer becomes insolvent?
4. Involve your family: Heirs should know about the decision.
5. Notary and Verbraucherzentrale: Have the contract explained before you sign.

One House, Four Routes: the Comparison

Starting point: a married couple, both aged 75, a detached house in Bayreuth, market value €320,000, local rent €1,050 a month. The following figures are simplified example values to show the differences; real offers depend on the provider, interest rates and life expectancy.

The comparison shows: every option has its price. Anyone who wants to stay in the house pays for it, through a deduction, a usage fee or by giving up the inheritance. Anyone who moves has the most freedom but loses their familiar home.

Partial Sale: the Costs over Ten Years

With a partial sale, it is worth looking closely at the total costs. An example with simplified assumptions:

For comparison: a loan of €160,000 over the same term would cost similar or lower interest, but is often hard for older people to obtain. Consumer advice centres recommend a particularly careful comparison for partial sales.

Securing a Life Annuity

With a private life annuity, the buyer pays over many years. What happens if they can no longer pay? A good contract provides for:

1. A real charge (Reallast) in the land register to secure the annuity payments, ranking ahead of any financing taken out by the buyer.
2. Right of residence or usufruct in first rank, so that it remains in place even in a forced sale.
3. An indexation clause, so that the annuity rises with inflation.
4. A right to retransfer or withdraw in the event of late payment.
5. Clear rules on maintenance: who pays for the roof, heating and façade?

Professional providers partly secure the annuity through insurance. Have the securities explained to you in writing. General information on rights in the land register is available under The land register explained simply and Usufruct and right of residence.

Taxes on Equity Release

• Sale of an owner-occupied property: tax-free if the owner-occupation requirements are met; see Speculation tax.
• Life annuity: only the income portion (Ertragsanteil) is taxed, which depends on your age when the annuity starts. At 75 it is 11%, meaning only 11% of the annuity counts as income.
• Lump-sum payments from the sale are not income.
• Usage fee in a partial sale: not deductible for owner-occupiers.

A Special Feature of Upper Franconia

Many partial sale and life annuity providers work with minimum values, often between €100,000 and €200,000, and concentrate on towns and sought-after locations. For houses in smaller municipalities in the Frankenwald or the Fichtelgebirge, there are therefore often fewer offers or none at all. Here, a conventional sale, even with an agreed later move-out date, is often the more realistic solution. In the towns of Bamberg, Bayreuth and Coburg, the choice is greater.

Decision Aid

Ask yourself these questions before you commit:

1. How much longer can and do I want to manage the house myself: garden, stairs, heating, repairs?
2. Do I need a lump sum or ongoing income?
3. How important is it to me that my children inherit the house?
4. Would a smaller, accessible apartment nearby be a real improvement?
5. Are my children interested in taking over the house, perhaps through a transfer during my lifetime? See Gifting a property.

We take time for this conversation, gladly together with your family. The free valuation gives you an initial orientation. For a sale with a later move-out, you can find the process under Selling a property.

The Role of the Family

Equity release affects not only the owners themselves but also their children and grandchildren: the house is no longer passed on. Many conflicts can be avoided if the family is involved early. Sometimes a better solution emerges in conversation:

• A child takes over the house and pays the parents a monthly annuity or a purchase price in instalments.
• The children support their parents with maintenance and costs, and in return the house stays in the family.
• The parents sell and move, and the children help with the move and the search for an apartment.

What matters is that the solution suits the parents' financial situation and still works if they need care. More on transfers within the family under Gifting a property.

Worked Example: Selling and Moving to a Rented Apartment

A married couple (both 74) sells their house in Hof for €230,000 and moves into an accessible rented apartment close to the town centre.

This gives the couple not only considerable financial leeway but also short distances, a lift and no more gardening. For many, this is the simplest and cheapest form of "equity release".

How to Recognise Reputable Providers

The market for partial sales and life annuities is young, and providers differ greatly. Look for:

1. an independent valuation report that does not come from the provider itself,
2. transparent costs: usage fee, fees on sale, cost of the valuation report,
3. clear rules on maintenance,
4. your right of residence secured in first rank,
5. the provider's financial stability,
6. enough time to think it over, without pressure.

Consumer advice centres (Verbraucherzentralen) offer independent advice on such contracts.