Banks are becoming more cautious when granting loans to house builders. This development is predicted by the auditing and consulting organization EY based on a recent analysis. "The tide has turned on the real estate market: The sharp rise in interest rates is curbing demand for real estate loans, and real estate, whose prices rose by 35 percent between Q1 2019 and mid-2022, now appears overvalued in many regions," says Robert Melnyk, Head of Banking and Capital Markets at EY Financial Services. According to Robert Melnyk, banks are therefore becoming more cautious when granting loans.
According to EY, the real estate loan portfolio in Germany is expected to decline by 0.1 percent in 2023. In contrast, growth of 0.5 percent is expected for the eurozone as a whole. 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 quota was introduced according to which the sectoral systemic risk buffer on loans secured by residential real estate should amount to 2.0 percent. Banks must therefore set aside equity for real estate loans granted and are prevented by the German Federal Financial Supervisory Authority (BaFin) from reducing risks when granting loans.
This is probably also due to the fact that it can be assumed that some borrowers will no longer be able to repay their monthly installments 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. According to EY, there have been very few loan defaults recently. The auditing and consulting organization attributes this to the coronavirus relief measures, among other things. However, an economic downturn is now to be expected, which will lead to an increase in corporate insolvencies, for example.
Sources: ey.com/bafin.de
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