Germany Fights Soaring Home Prices With Lending Curbs

Frankfurt—Germany’s financial regulator said it would clamp down on mortgage lending, signalling mounting concerns about the risks posed by the nation’s rapidly rising house prices.

Across Germany, house prices have boomed in recent years as some German families overcame their traditional reluctance to own property. The trend has been powered by ultralow borrowing costs from the European Central Bank and low returns on bank deposits, where most Germans stash the bulk of their savings.

Germany’s Federal Financial Supervisory Authority, or BaFin, warned lenders on Wednesday to be conservative in their mortgage lending given the quick rise in prices, and said borrowers should be able to make their monthly mortgage payments even if interest rates rise. It also ordered local banks to hold additional capital against residential mortgages.

“Vulnerabilities to negative economic developments and especially to the residential property market have built up” in Germany’s financial system, the regulator said.

Germany faces a similar predicament to economies around the world, including the U.S., where efforts to support the economy during the pandemic helped spark a surge in property investment. In China, a crackdown on housing speculation amid booming prices is weighing on the nation’s growth prospects.

Housing bubbles have been at the root of many financial crises, including the 2007-08 global financial crisis.

The move to curb access to mortgages amounts to a form of financial-system tightening that targets a specific segment of the economy. The European Central Bank has announced a scaling back of its giant pandemic-era bond-buying programs, but has been less aggressive than the Federal Reserve about raising benchmark interest rates. The Fed is expected to lift rates multiple times this year while the ECB has pledged to keep its deeply negative rates for an extended period.

There is concern that the ECB’s reluctance to raise interest rates is fueling a speculative frenzy among investors in property and other areas. While the ECB oversees monetary policy in the euro area, individual countries have the ability to impose so-called counter cyclical buffers to fine-tune local financial conditions.

German house prices have surged during the pandemic, rising almost 60% above their 2015 levels, according to the federal statistics agency Destatis. Prices jumped by 12% year-over-year in the three months through September, one of the fastest growth rates in Western Europe.

German household debt has also increased sharply, rising to around 58% of gross domestic product in the middle of last year from 53% of GDP in 2019, according to the Bank for International Settlements, a consortium of central banks. That is still lower than the U.S., where household debt was around 79% of GDP last year.

BaFin said it would ask German lenders to set aside a capital buffer worth 2% of the risk-weighted assets on loans secured by residential property, up from zero at present. Banks will also need to set aside 0.75% of the risk-weighted assets on domestic risk positions, also up from zero, it added. The buffers are intended to absorb possible future losses.

The banks will have time to adjust to the new requirements, which take effect early next year, and will preserve around €22 billion, equivalent to $25.02 billion, of core capital in the banking system, BaFin said. Banks will generally be able to meet the new requirements from existing excess capital, although a few institutions will need to raise fresh capital, it said.

The regulator warned that it might issue binding loan restrictions if it judged that lending standards had become too relaxed, including an upper limit for the proportion of debt in residential property financing.

“With these capital buffers, we not only take account of cyclical risks, but also precisely counter the specific financial stability risks on the residential property market, where price and credit growth are currently very strong,” said BaFin President Mark Branson.

German cities were at, or near, the top of an annual real-estate bubble index published by Swiss bank UBS last October, suggesting that property prices there will likely fall in future. Frankfurt topped the list of 25 global cities, while Munich was in fourth place. The most overvalued U.S. city, Miami, was in 12th place.

A breathtaking view and a lush quarter-acre block are high up the wish list with any lifestyle property, but this contemporary Buderim residence takes things to another level.

Designed and built by owners Stu and Nat Faid, the Sunshine Coast home reflects their vision and incredible attention to detail.

As an architect and designer, Nat believes a prime position deserves an incredible project.

“The heart of the house is undoubtedly the living area and expansive deck. At over 100sq m and elevated more than 6m above the ground, you literally feel like you’re floating. We love how the views stretch from the Glass House Mountains along the coastline to Mooloolaba. Across the ocean, you can even see the sandbanks on Moreton Island,” she says.

While the views and the 1024sq m land parcel make their mark, it’s the suspended 12m heated shipping container swimming pool that’s making waves locally.

“When people arrive, the first thing they do is look up,” Nat adds.

After purchasing the property in 2021, the pair knew the existing house wouldn’t live up to their family of four, but they fell in love with the location and outlook so decided to adapt.

Initially, the pool’s unique design was simply a reaction to an everyday Queensland problem, but ultimately became a feature.

“The pool was at first a product of practicality. We wanted to be able to watch the kids in the pool from the house, but to do that required elevating the pool more than six meters off the ground,” Stu says.

“When we looked at the engineering required, it conflicted with our minimal-touch ethos in preserving the land and the visual aesthetic of the finished design. What followed was a lot of searching for a solution, and as luck would have it, the answer was almost on our doorstep.”

Shipping Container Pools seemed like a no-brainer answer to the pool problem. Having moved internationally multiple times, the couple saw an opportunity to weave their personal story into the fabric of their new home.

“The opportunity to incorporate a nod to that chapter of our life into the build was too good to miss,” he says.

“It also unashamedly reinforces the origins of the pool construction, which ties into the rest of the design in the house. Throughout the home, we have embraced where the old meets the new, we have not tried to blend, cover or hide the origins of the home, we have chosen instead to make sure the evolution of the house is clear to see.”

The Faids’ global family journey is evident throughout the home, from the grand Middle Eastern entry doors sourced from Dubai where the couple once lived, to the remarkable views from the Glass House Mountains to Mooloolaba.

Created to enjoy every season, the house has a space for all eventualities with an open plan living area spilling out to the full-width deck and pool, a sleek kitchen with an Ilve integrated fridge and freezer, Bosch ovens, an induction cooktop, built-in coffee machine and microwave, two dishwashers, filtered water and a butler’s pantry.

Four spacious bedrooms each have built-ins, the main features a large ensuite with twin vanities and two more bedrooms share a“Jack and Jill” style bathroom. There is also a third full bathroom.

The Buderim home is 12.5kms from Mooloolaba and the Mooloolaba River National Park with the Sunshine Coast Airport 13.5kms to the north, however Stu adds that there is rarely a reason to leave.

“It would be fair to say that apart from popping down the hill to go to the beach, we often go days without ever leaving the village. It’s really is a wonderful spot.”

Packed with mod cons, the Buderim home also features six-zone ducted air-conditioning, engineered oak floors and a double-sided Stuv wood-burning fireplace, a mudroom, heated floors and sensor lights in the bathrooms. There is also a private elevator, solar power and battery, as well as landscaped gardens and a large lock up garage and shed.

The property at 10 Orient Court, Buderim is listed with Zoe Byrne and Greg Ward from Ray White Buderim and will go to auction on September 22 at 9am at Mercedes-Benz Sunshine Coast, 65 Maroochy Blvd, Maroochydore.

Germany Fights Soaring Home Prices With Lending Curbs

As in the U.S. and other economies, pandemic financial support has sparked a surge in property investment.

This sky-high home on the Sunshine Coast with iconic shipping container pool is a testament to modern design and engineering.