Residential Property Finance

The Pfandbrief banks are important providers of residential and commercial property finance. They are holding substantial market shares in their core business fields: 40 percent of residential property finance are granted by the vdp member banks.

Overall conditions for building and buying residential properties have improved steadily over the past decade since the crisis in the financial markets. Although interest rates on loans have not dropped any further over the past two years, they were nevertheless at
an exceptionally low level. For example, the average interest rate on housing construction loans in 2018 hovered around 1.93% (effective interest rate, total cost of loan; source: Deutsche Bundesbank).

Residential property financing: Loan disbursements from banks and insurance companies in Germany, 2010 to 2018 in EUR billions

Source: vdpResearch based on data from lending and insurance industry associations and from the Deutsche Bundesbank

Stable housing demand resulted in a steady increase in the volume of new construction, construction work on existing structures (modernisation/maintenance) and turnover in the market for existing properties. The trend in the volume of construction and transactions is reflected in the residential property financing business of banks and insurance companies in Germany.

The synchronous movement of the aggregate volume of construction and transactions and of lending suggests that the financing structure remained largely stable. With slight fluctuations, the average share of borrowed funds for all residential property investments and transactions over the past three decades has been approximately 48%.

Investments and transactions in the residential property market and their financing in Germany, 2010 to 2018 in EUR billions

Sources: German Institute for Economic Research/DIW (construction volumes), vdpResearch based on data from regional expert committees for property valuation (transaction volumes), vdpResearch based on data from lending and insurance industry associations and from the Deutsche Bundesbank (loan disbursements)

Residential property financing business of vdp member institutions

From 2010 to 2018, new housing loans increased by 6.8% p.a. on average. In 2018, EUR 91 billion of new loans were granted, of which more than 96%, or EUR 87.6 billion, were domestic loans. The structure of the residential property financing business has been very stable over the period from 2010 to 2018 in terms of individual types of properties. Single-family and two-family homes accounted for around 50% of new housing construction loans, while condominiums accounted for around 20%. The remaining 30% was used primarily to finance multi-family housing.

Residential property financing business of vdp member institutions from 2010 to 2018

Source: vdp; reporting group: vdp member institutions as at 31 December 2018