The Bauspar system at a glance offers the following advantages:
As explained above, the Bauspar system is a closed one. Hence, interest rates are not given by capital markets and are fixed for the whole contract term. Bauspar contracts consequently allow for exact financial planning and protect Bauspar customers against risks resulting from volatile capital market interest rates. Further more, Bauspar contracts are quite flexible and can be adjusted to many different types of customers. A vast variety of different tariffs to choose from is offered by the existing 15 private Bausparkassen existing in Germany. In many developing countries people earn their income informally and often in quite different amounts from time to time. In the Bauspar system they may benefit from the possibility of making additional repayments without having to pay a prepayment penalty. Hence, the Bauspar system helps people to become clear of debt as soon as possible.
In many countries in transition and developing countries the supply with mortgage loans is extremely limited or interest rates remain unaffordable for the majority of people. This is most often due to the lack of information credit institutions have regarding their customers creditworthiness. Most of their customers could never establish a credit history. There are no credit bureaus. The Bauspar system is able to overcome and bypass this lack of information because Bauspar customers establish their creditworthiness by saving regularly, demonstrating their ability to put aside certain amounts in order to get a loan. By implementing credit bureaus and permitting the Bausparkassen to forward data on their customers the Bauspar system helps people to become reliable and creditworthy customers of other credit institutions as well. Hence, the Bauspar system can help to build up a sound and functioning financial system.
Transition countries, in particular, show very low savings rates that are due to a loss of trust in the banking sector. Because the Bauspar system is a quite simple, understandable and comparatively safe method for housing finance, it is able to re-establish people’s confidence in the banking sector. Like that, it may stabilize the financial sector and lead to higher economic growth.
In contrast to other credit institutions, Bausparkassen are able to offer smaller loan amounts – depending on the agreed contract sum. This is quite important, especially for countries in transition, because these countries normally dispose of a huge housing stock in need of renovation.
Bauspar customers also benefit from some kind of educational side effects the Bauspar system entails, because they are forced to first save a certain amount in order to qualify for a loan. Building up own funds makes them deal with their resources rationally and economically. This may sound very abstractly and theoretically but if you throw a glance at other countries, where 100%-financing is common, you will notice that building up own funds is quite reasonable and avoids negative side effects like non performing loans.
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