Status: 08.11.2022 08:25 a.m
Due to rising interest rates, interest in mortgage lending has fallen sharply. New business with it collapsed: real estate loans are less in demand than they have been for eight years.
In the course of rising interest rates, the demand for mortgage lending has fallen further. New business by German banks with real estate loans to private households and the self-employed fell by 28 percent in September compared to the same month last year, according to new data from the consulting firm Barkow Consulting. With a volume of 16.1 billion euros, new business is at its lowest level since 2014.
The analysis is based on figures from the European Central Bank (ECB) and the Bundesbank. The reported new business consists of extensions and renegotiations of existing financing as well as loans concluded for the first time.
Consumers and banks unsettled
According to Barkow, this is a record decline and an accelerating downtrend. In the past few months, new business with mortgage lending had already clouded over due to the rise in interest rates. Since the beginning of the year, interest rates on ten-year real estate loans have more than quadrupled to around four percent. With the monthly installments, this often amounts to hundreds of euros.
“There has never been such a rise in interest rates,” said consultant Peter Barkow. In a dpa survey, credit intermediaries also reported that consumers were very cautious. “With the rising interest rates, many people have recalculated, made compromises when it comes to real estate or have refrained from buying real estate for the time being,” says Interhyp, for example. “Demand on the market is currently decreasing across all channels,” said Michael Neumann, CEO at Dr. Small. The company Hüttig & Rompf is also “definitely observing a clear uncertainty among consumers and those interested in real estate”.
In addition, because of the high inflation, banks are examining applications for real estate loans more strictly – for example, they charge consumers with higher living costs. “When a bank receives an inquiry, they examine the potential borrower very carefully and consider whether they can afford the more expensive interest and principal payments in the future,” explained Christina Bannier, Professor of Banking & Finance at Justus-Liebig -University Gießen, recently opposite tagesschau.de. There is also the risk of a recession, which can mean job losses and a drop in income.
Projects are cancelled
As if that weren’t enough, builders are also struggling with the sharp increase in construction prices. Many housing projects are already being cancelled. According to the ifo Institute, 16.7 percent of the construction companies surveyed reported canceled orders in September, significantly more than in August. With the rougher times in the real estate market, there is a lot of nervousness about how to proceed after years of skyrocketing prices.
All of this has left its mark on the demand for real estate loans. According to the auditing company PwC, new business in housing construction loans from German banks to private households reached an all-time high of a good 32 billion euros in March, but it fell in the following months and fell to 18.5 billion euros in August. After the new financing volume in May was almost 20 percent above the previous year, it turned negative from June, according to Barkow Consulting. In August, the minus compared to the previous year grew to 19 percent and in the following month to 28 percent. The total portfolio of construction financing rose by a good six percent in September – still more than the long-term average.
Mortgage financing is a very important business for German banks. At around 40 percent, private real estate loans make up the largest share in their loan book. According to Barkow, after years of boom, the stock was 1555 billion euros in September. The decline in mortgage lending is worrying banks. “Demand has collapsed from one day to the next. Many projects in the planning stage are being cancelled,” Sparkasse President Helmut Schleweis recently told the “Handelsblatt”.
Building interest rates are falling again slightly
The Bilthouse Group, which brings together several credit brokers, can confirm the reports of the downward trend. “You used to be able to finance with very little or no equity.” At the moment, some financing requests cannot be passed on to banks “since customers cannot bear the increased interest burden”.
Bank lending has become considerably more restrictive, observes Ditmar Rompf, CEO at Hüttig & Rompf. “When the equity share is relatively low, they take a particularly close look.” The proportion of prospective buyers who have to be sent home has increased significantly.
The credit intermediaries also see rays of hope. Interhyp observes that some banks have reacted to the rise in interest rates and lowered their minimum repayment requirements. Check24 also reports slightly falling construction interest rates. In October, they fell below their multi-year high again and dropped to an average of 3.62 percent. “Real estate prices are falling again in some regions for the first time,” says Ingo Foitzik, Managing Director of construction financing.