Germany tightens mortgage lending to reel in soaring housing prices

Home prices have shot up almost 60 percent since 2015

Germany tightens mortgage lending to reel in soaring housing prices (iStock)
Germany tightens mortgage lending to reel in soaring housing prices (iStock)

Germany, the only nation with two cities identified as most at risk to a property bubble, will put the squeeze on mortgage lending over mounting concern that booming housing prices pose a risk to the economy.

The move, by the nation’s Federal Financial Supervisory Authority, comes as the European Central Bank drags its feet about raising interest rates, fueling a speculative property frenzy across the continent, the Wall Street Journal reported. Housing bubbles have led to financial crises, including the global recession of 2007 to 2008.

Home prices in Germany are soaring as families overcome a traditional reluctance to own property, fueled by ultralow borrowing costs and low returns on bank deposits, where most Germans pile savings.

Banking regulators are warning lenders to be conservative in mortgage lending, saying borrowers should still be able to pay mortgages if rates rise. They’ve also told local banks to hold additional capital against residential mortgages.

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German home prices surged almost 60 percent since 2015, according to the federal statistics agency Destatis, the Journal said. In one of the fastest growth spikes in Western Europe, prices leaped by 12 percent in the three months through September from the same quarter a year earlier.

German household debt rose to 58 percent of gross domestic product in mid-2021 from 53 percent in 2019, according to the Bank for International Settlements. That’s still far below the U.S., where household debt stood at about 79 percent of GDP last year.

Frankfurt topped the list of an annual real-estate bubble index published by Swiss bank UBS last October, followed by Toronto and Hong Kong, while Munich was fourth. New York ranked 20th on the UBS list, making it merely “overvalued.”

Germany’s capital, Berlin, led a Knight Frank list from the fourth quarter of 2020 of the globe’s top 150 residential real estate markets. Berlin housing prices rose about 20 percent on the year.

[WSJ] – Dana Bartholomew