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Development area in Saxony-Anhalt (symbol image): Banks should be more careful when granting new loans
Photo: Jan Woitas / dpa
Square meter prices of 8,000, 10,000 or even 12,000 euros are now the order of the day in major German cities.
The European Systemic Risk Board (ESRB) is concerned about the rapid increase, which has recently been even stronger than inflation.
In view of the danger of overvaluations in the real estate market, the EU Risk Council recommends stricter regulations.
There is an increase in house prices across the board - both in cities and in rural areas.
Estimates pointed to a "high and growing overvaluation" in Germany.
In its report, the Risk Council spoke of
strong price increase,
Signs of loosening lending standards
and missing data on home loans.
He classified the risk for Germany as medium.
The legal framework is only “partly appropriate and partly sufficient”.
He now put the overvaluation at 19 to 23 percent in the first quarter of 2021.
The ESRB sent its recommendations to the responsible ministries, but the vulnerabilities had not been adequately addressed to date.
However, he did not issue any official warnings, but in 2019 Germany and 2016 Austria had already received warning letters.
The Council issued current warnings for Bulgaria, Croatia, Hungary, Liechtenstein and Slovakia.
Upper limit for the amount of real estate loans required
The basis is an examination of the medium-term vulnerability of the residential real estate markets in the European Economic Area.
All EU countries as well as Iceland, Liechtenstein and Norway were analyzed.
The result shows that risks to financial stability from the real estate market have grown in some countries.
House prices and overvaluations have mostly risen, while household debt is increasing in some countries.
In particular, the risk watchdogs propose for Germany to introduce measures aimed at borrowers.
Above all, they keep an eye on the LTV (loan to value) ratio, which is important in real estate financing.
This reflects the relationship between the amount of the loan and the value of the property.
The higher the rate, the greater the risk that the borrower will not be able to service the loan.
The German authorities should quickly introduce an upper limit for the LTV ratio, the risk guards recommended.
In January, the financial regulator Bafin warned banks and insurers to be particularly careful when granting new loans.
Financing with a high LTV should be treated restrictively.
Borrowers should be able to meet their interest and principal payments at all times.
Larger capital cushion
In the ESRB's view, the introduction of an upper limit for the LTV ratio for real estate financing should also be accompanied by capital-based measures to strengthen the resilience of credit institutions.
In addition, financial institutions should create more crisis cushions - the so-called anti-cyclical capital buffer - and also create a systemic risk buffer for real estate loans.
In Germany, the financial regulator Bafin recently raised the countercyclical capital buffer from zero to 0.75 percent.
In addition, systemic risk buffers for real estate loans of two percent will be introduced.
The Bundesbank has also been warning of overvaluations of 10 to 30 percent for residential real estate in Germany for a long time.
The rise in prices for apartments and houses has recently accelerated.
According to the Federal Statistical Office, real estate prices rose by an average of twelve percent in the third quarter of 2021 compared to the same quarter of the previous year.
It was the largest price increase since the time series began in 2000
The real estate market can have a strong impact on the financial system: banks can falter when real estate loans default on a large scale, as in the global financial crisis.
Apr/dpa/Reuters
