Analysis: New business with mortgage lending continues to collapse

Demand for mortgage lending has fallen further as interest rates have risen.

Analysis: New business with mortgage lending continues to collapse

Demand for mortgage lending has fallen further as interest rates have risen. The new business of German banks with real estate loans to private households and the self-employed collapsed in September by 28 percent compared to the same month last year, as new data from the consulting firm Barkow Consulting show.

With a volume of 16.1 billion euros, new business is at its lowest level since 2014, according to the analysis, which is based on figures from the European Central Bank and the Bundesbank. The reported new business consists of extensions and renegotiations of existing financing as well as loans concluded for the first time. Barkow spoke of a record decline and an accelerating downtrend.

In a survey by the German Press Agency, 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 Huttig company

Interest rates have quadrupled

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 4 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 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.

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.

Slump in lending to households

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". And the deputy head of Deutsche Bank, Karl von Rohr, assumes "that the real estate business across the industry will not only be weaker in the short term, but in the medium term".

Lending more restrictive than before

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

Neumann from Dr. Klein reports that it's not only interest rates that are weighing on demand for home loans, but also the increased cost of living. There are interested parties who could afford a property in purely mathematical terms - but in view of the high inflation and high heating costs, they sometimes waited.

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. And Neuman says: "Many sellers still want to sell at the old price at lower interest rates. Unfortunately, there are no buyers at these prices." The supply is greater than the demand. "There is now something that hasn't existed for 15 years: a buyer's market."