Residential Property Finance

Pfandbrief banks have traditionally been major providers of capital for residential and commercial construction. With a market share of around 40 percent of new residential real estate financing business, they are one of the most important providers of such loans in Germany.

Development of residential real estate financing in Germany as a whole

The development of the real estate market and thus also of the real estate financing business in Germany in 2020 is closely linked to the Covid-19 pandemic and the resulting economic recession, with a decline in gross domestic product of -4.9%. Struggling particularly hard with the consequences of the Covid-19 pandemic were the trade, transport and hospitality sectors, which saw employment fall by around 340,000 in 2020. This contrasts with an increase in employment in public services, education, health and construction, among others, but the unemployment rate at the end of 2020 was still one percentage point higher than at the same time last year, at 5.9%.

In this recession, the housing market is once again proving to be less susceptible to economic cycles, as was already the case during the financial market crisis. Despite the difficult economic environment, demand for residential real estate remained high in 2020, both among owner-occupiers and capital investors. This is where the government stabilization measures to deal with the economic consequences of the pandemic, which largely stabilized household incomes, come into play. In addition, demand has been boosted by the growing importance of home as a place of work. Furthermore, financing conditions improved once again. In view of the continuing shortage of supply, this led to a 6.8% increase in prices. Prices for owner-occupied homes and condominiums rose particularly sharply, by 7.6% and 7.4% respectively, while prices for multi-family houses increased somewhat less, by +6.2%. Unabated high demand for residential real estate coupled with rising prices led to a further significant increase in loan commitments for residential real estate.

Overall, loan disbursements in Germany totaled just under EUR 270 billion in 2020 an increase of 10% year-on-year.1)

New residential real estate financing business in Germany 2005 - 2020

Source: vdp calculations based on information from banking and insurance industry associations and the Deutsche Bundesbank.

Development of residential real estate financing by vdp member institutions

In 2020, vdp member institutions committed EUR 108.3 billion in new residential real estate loans, an increase of 8.1% on the previous year.

At EUR 56.8 billion, more than half of the loan commitments were for financing single- and two-family homes. This segment recorded above-average growth in loan commitments last year, with an increase of just under 15%.
The unabated high demand for condominiums is also reflected in a significant increase in loan commitments, which at EUR 22.5 billion in 2020 were almost 9% higher than the previous year's volume.

Although commitments for multifamily houses fell slightly by -2.9% year-on-year, this segment still represents the second-largest residential segment among vdp member institutions, with total loans of just under EUR 26.2 billion.

Financing existing buildings (including modernizations) accounted for by far the largest share of new business in 2020, at 64% (2019: 63%). The share of financings directed towards new residential construction was 22% (2019: 23%). As in the previous year, the share of loans to redeem third-party loans was 14% (cf. fig. 2).
At 97%, domestic business accounted for the lion's share of loan commitments. Here, at a total of EUR 105.3 billion, around 9% more loans were committed than in the previous year. This contrasts with a decline in cross-border business of just under 16%, with the result that last year only just under EUR 3 billion were committed for the purchase of residential real estate abroad.

Extensive data material on this subject is available for download in our statistics section.

1) The quantification of residential real estate financing business is based on the domestic business of banks and savings banks as well as life insurers. The calculation is based on data provided by vdp member institutions and various associations of the banking and insurance industry. Significant parts of the banking industry, namely cooperative banks, public sector agenciesand a large proportion of regional and other credit banks, do not provide such information. This data gap was closed by means of an extrapolation based on available data on other groups of institutions and on the basis of Deutsche Bundesbank loan portfolio statistics.