Germany tightens mortgage lending to curb soaring property prices

Germany tightens mortgage lending to cope with soaring house prices (iStock)

Germany, the only country with two cities identified as most at risk of a property bubble, will put pressure on mortgages amid growing concern that soaring property prices pose a risk to the economy. ‘economy.

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

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

Banking regulators are warning lenders to be cautious with mortgages, saying borrowers should still be able to pay mortgages if rates rise. They also told local banks to hold additional capital against residential mortgages.

German house prices have jumped nearly 60% since 2015, according to the federal statistics agency Destatis, according to the Journal. In one of Western Europe’s fastest growth spikes, prices jumped 12% in the three months to September from the same quarter a year earlier.

German household debt fell from 53% in 2019 to 58% of gross domestic product by mid-2021, according to the Bank for International Settlements. That’s still well below the United States, where household debt stood at around 79% of GDP last year.

Frankfurt topped the list of an annual property bubble index released by Swiss bank UBS last October, followed by Toronto and Hong Kong, while Munich was fourth. New York ranked 20th on the UBS list, which simply makes it “overvalued.”

The German capital, Berlin, topped a Knight Frank list from the fourth quarter of 2020 of the world’s top 150 residential property markets. Housing prices in Berlin rose by around 20% over the year.

[WSJ] – Dana Barthelemy

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