Germany Tightens Mortgage Lending to Reel in Soaring Housing Prices

Germany Tightens Mortgage Lending to Reel in Soaring Housing Prices
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Germany tightens mortgage lending to stave off rising house prices (iStock)

Germany, the only country where two cities have been identified as most at risk of a property bubble, will squeeze mortgage loans due to growing concern that rising home prices pose a risk to the economy.

The move, taken by the country’s federal financial watchdog, comes as the European Central Bank is dragging its feet on interest rate hikes, fueling a property frenzy across the continent, The Wall Street Journal reports. Housing bubbles led to financial crises, including the global recession from 2007 to 2008.

House prices in Germany have risen as families have overcome a traditional reluctance to own property, fueled by very low borrowing costs and low returns on bank deposits, as most Germans hoard savings.

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

The magazine said home prices in Germany have risen by about 60 percent since 2015, according to the federal statistics agency Destatis. In one of the fastest growing gains in Western Europe, prices jumped 12 percent in the three months to September compared to the same quarter a year earlier.

German household debt rose to 58 percent of GDP in mid-2021 from 53 percent in 2019, according to the Bank for International Settlements. That’s still much lower than the US, where household debt was about 79% of GDP last year.

Frankfurt topped the annual property bubble index list published by Swiss bank UBS last October, followed by Toronto and Hong Kong, while Munich ranked fourth. New York ranked 20th on the UBS list, making it just “overrated”.

The German capital, Berlin, topped Knight Frank’s list in the last quarter of 2020 for the world’s 150 largest residential real estate markets. Home prices in Berlin have risen about 20 percent over the course of the year.

[WSJ] – Dana Bartholomew

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