Rising interest rates are a burden: demand for real estate loans collapses massively

Rising interest rates are a burden
Demand for real estate loans collapses massively

05/22/2023, 11:09 am

A year ago, many Germans quickly took out a loan for their own home because they expected interest rates to rise. You’re right, which is now leading to a significant drop in new home loan business. Not so with commercial real estate.

Higher interest rates continue to weigh heavily on demand for housing loans. In the first quarter, the new business of the real estate financiers united in the Association of German Pfandbrief Banks (VDP) collapsed by 49.2 percent to 16.3 billion euros. A year ago there was still a record quarter with a good 32 billion euros, as many people quickly took out residential real estate loans in anticipation of rising interest rates.

Measured against the final quarter of 2022, the VDP recorded a minus of 4.2 percent. The association represents the most important real estate financiers in Germany, including Deutsche Bank, Commerzbank, state banks and large savings banks. The demand for real estate financing continues to be characterized by restraint, said VDP CEO Jens Tolckmitt. The adjustment of the price expectations of buyers and sellers is not complete, there are few transactions.

Sharply increased interest rates, high inflation and uncertainty about the Ukraine war have ended the long real estate boom in Germany. The demand for housing loans had fallen steadily from May 2022, and according to Bundesbank data there was only a slight recovery in March.

In contrast to housing financing, new business with loans for commercial real estate recovered strongly, according to the VDP. It grew in the first quarter by almost a fifth compared to the final quarter. Overall, the association recorded new business of 25.6 billion euros – an increase of 3.2 percent in a quarterly comparison.