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Healthy German Mortgage Market

The mortgage broker Interhyp published statistics on the volumes and ratios of loans it brokered, and these are quite interesting in the context of the ongoing, and lately intensifying, discussion of potential real estate bubbles. According to Interhyp, the amounts borrowed on loans it brokered in 2019 increased by around eight percent on average, which is mainly explained by an analogous rise in acquisition costs, including incidental acquisition costs, by around four percent, whereas the equity committed by buyers remained more or less stable at c. 100,000 euros.1

At the same time, the relationship between loan amount and income level has gone up over the past years, according to Interhyp, rising from 3.9 times the annual net income in 2013 to 4.9 times by 2019. This is no doubt due to the increase in purchase prices, which followed a growth rate more dynamic than the rise in median wages. Compared to other countries, the ratio of loan to income as diagnosed for Germany by Interhyp, itself is a member company of the Dutch ING bank, is rather robust.

German Central Bank has Issued Warnings since 2012

Meanwhile, the Association of German Mortgage Credit Banks (VDP) released the acquisition price stats for the fourth quarter of 2019. These show that prices for residential real estate in Germany increased by an average of 6.4 percent over prior-year period, while the growth rate in the “Big Seven” cities averaged 2.9 percent. This means that the price dynamics have slowed down a little, especially in the seven Class A cities, where the growth rate has not been this low since 2010, according to the VDP association. Nonetheless the Association of German Mortgage Credit Banks sees no reason to assume that prices will decline – “As long as demand exceeds supply, the price trend won’t change in a significant way,” said Jens Tolckmitt, the association’s director general.2

Bundesbank, the German central bank, by contrast, warned once again that housing markets could be overheating. It estimates that pricing excesses in German cities could amount to somewhere between 15 and 30 percent.3 That said, it is not the first time that Bundesbank has warned against excessive pricing. In late 2012, the central bank had already made headlines with a warning against a real estate bubble in Germany, as Manager Magazin wrote in 2017.4 In early 2019, Bundesbank again registered pricing excesses of 15 to 30 percent, the same bandwidth it quoted this year.5