German central bank could intervene over rising house prices
The German Bundesbank is considering taking measures to curb risky lending on mortgages.
Germany's chief banking supervisor – the Bundesbank – is considering imposing additional restrictions on banks' lending abilities in the housing market.
Against a backdrop of ever-increasing house prices and stagnating incomes, property buyers in Germany are taking out mortgages with less and less initial equity, with recent data showing that the loan value now exceeds the property purchase price in nearly 10 percent of sales.
This poses the risk that more buyers will eventually become overburdened with debt and that an unstable property bubble could develop.
In a recent interview with the Handelsblatt, the Bundesbank's board member Joachim Wuermelin said that "the growth is taking place in a market that is becoming increasingly vulnerable because of rising real estate prices."
"If further excessive risks build-up, we reserve the right to adjust the buffers or use other instruments instead. For example, in order to avoid high-risk loans, it might make more sense to limit the debt component in real estate financing via a cap on the loan-to-value (LTV) ratio," he said.
Loan-to-value ratios measure how much money is being borrowed compared to the total value of the property. Higher LTV ratios reflect higher rates of borrowing and represent riskier loans for the banks.
According to Wuermeling, the share of residential real estate financing on bank balance sheets has also increased enormously, and now stands at 35 percent of all bank loans. This is also a result of price increases - and the trend is continuing.
Only recently, financial regulator BaFin decided that banks would have to set aside more money as a security buffer for real estate loans in the future because of skyrocketing housing prices.