Status: 12.01.2022 2:05 p.m.
House builders must expect building interest rates to continue to rise. Because the banks should hold more equity capital, according to the will of the financial supervisors, because the real estate market threatens to overheat.
Real estate loans will soon become more expensive again. Because of the increasing risks, especially on the housing market, the German banks should hold more equity capital. This was proposed by the Financial Stability Committee, which includes representatives from the Federal Ministry of Finance, the Bundesbank and the financial supervisory authority BaFin.
Bundesbank Vice President Claudia Buch spoke of a purely preventive measure, because the financial sector has so far been very resilient. Nevertheless, with a view to financial stability, it is now time to switch to prevention mode, emphasized BaFin’s head of financial supervision, Mark Branson.
Countercyclical capital buffer and more equity
Specifically, the banks are to build a so-called countercyclical capital buffer of 0.75 percent. The buffer was reduced to zero percent in the wake of the pandemic, before it was 0.25 percent. In principle, the capital buffer is intended to increase the resilience of banks in times of crisis.
In order to secure residential property loans, the banks are even supposed to save two percent more equity. Overall, private construction financing must then be secured with an extra buffer of 2.75 percent.
Between ten and 30 percent too expensive
Because BaFin boss Branson fears that the real estate market could overheat. Prices for houses and apartments have risen significantly recently; There are also many long-term loans that could make the financial system vulnerable if key interest rates rise. The BaFin boss announced that one will closely monitor how the standards of lending develop.
The Bundesbank, too, recently issued repeated warnings of overheating on the German real estate market. She estimates that the current price level is ten to 30 percent above what can be justified by the fundamentals.
This is particularly true of the Frankfurt region. According to the major Swiss bank UBS, the housing market there is more overheated than in any other metropolitan region in the world. For home buyers and home builders across Germany, the measure decided by the supervisors means rising interest rates. Because the banks will try to pass on some of the costs they incur due to the higher capital requirements to the customers.
Risk of rising key interest rates
Another risk for the banks is the looming rise in key interest rates. If these were to be increased abruptly, this could put many banks in distress: Their refinancing costs would then rise quickly, while income would only improve slowly due to the long-term low-interest loans. Overall, the financial market has recently become more vulnerable, according to the banking supervisors.
Nevertheless, BaFin boss Branson is convinced that the banks “will not be unduly strained” by the two measures. The countercyclical capital buffer is around 17 billion euros, while the sectoral housing loan buffer is around five billion euros. Most banks have enough capital for this, and only a little has to be accumulated anew. In addition, the banks would have until February 2023 to build up the buffer. “So we don’t expect a credit crunch,” said Branson.