Banks are becoming more cautious in granting loans to home builders. This development is predicted by the audit and consulting organizations EY based on a recent analysis. "The tide has turned in the real estate market: The sharp rise in interest rates is slowing demand for real estate loans, and in addition, real estate, whose prices have risen by 35 percent between Q1 2019 and mid-2022, now appears overvalued in many regions," says Robert Melnyk, head of the Banking and Capital Markets practice at EY Financial Services. Banks are therefore becoming more cautious about lending, according to Robert Melnyk.
According to EY, the real estate loan portfolio in Germany is expected to decline by 0.1 percent in 2023. By contrast, growth of 0.5 percent is expected for the eurozone as a whole. In addition, the increase in the so-called countercyclical capital buffer will also have an impact on the real estate market. This will be raised from 0 to 0.75 percent for risk-weighted assets from February 2023. In addition, a ratio had been introduced under which the sectoral systemic risk buffer on loans secured by residential real estate is to be 2.0 percent. Banks must accordingly set aside equity capital for real estate loans granted and are discouraged by the Federal Financial Supervisory Authority (BaFin) from reducing risks in lending.
The reason for this is probably also the fact that it can be assumed that some borrowers will no longer be able to repay their monthly installment in the future. According to EY, the share of non-performing loans in the total loan volume in Germany is expected to rise from 1.2 percent (as of December 2022) to 2.3 percent in 2023. Most recently, there have been very few loan defaults, according to EY. The audit and consulting organization attributes this, among other things, to the Corona bailouts. However, an economic downturn is now to be expected, leading to an increase in corporate insolvencies, for example.
Sources: ey.com/bafin.de
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