Reaching the peak position after a two-year absence. - July witnessed a notable surge in requests for construction loans from consumers.
Individuals and freelancers in Germany have demanded an equivalent number of home loan approvals in July as they did over the past two years. German banks' new business with private clients and self-employed individuals hit 19.5 billion euros, a 25% surge compared to the previous year. The figure last reached this level in July 2022, according to an analysis by Barkow Consulting, using data from the European Central Bank. In June, new business in mortgage lending had already shown signs of recovery, increasing by 17% compared to the previous year, totaling 16.3 billion euros.
The rejuvenated mortgage financing market appears to be the result of escalating rents and a recent drop in interest rates, concludes Barkow Consulting's managing director, Peter Barkow. "The recovery is underway." So far this year, new business has topped 112 billion euros, a nearly 18% increase compared to the previous year. The interest rates for 10-year loans have dropped once more, currently lingering below 3.5% after reaching a high of 4.2% in the final quarter of 2023, according to Barkow.
Recovering from a severe downturn
The new business with private mortgage financing had been thriving until the spring of 2022, reaching a monthly volume of over 32 billion euros at its zenith. However, an significant increase in interest rates put a halt to this growth. This made mortgages more expensive following a prolonged period of low interest rates. Moreover, escalating construction costs led many to abandon their dreams of building or purchasing a home. In 2023, the new business in mortgage financing plummeted to 161 billion euros, a 37% decrease compared to 2022, as per data from Barkow Consulting.
Recently, the Association of German Pfandbrief Banks (VDP), which represents the major mortgage lenders in Germany, also reported an uptick in lending activity. They recorded the largest new business in mortgage loans since the third quarter of 2022, fueled by a higher demand for housing finance. This suggests that the indications of an end to the housing crisis are becoming stronger. Just recently, the VDP reported a stabilization of housing prices for the second quarter.
Despite the recent increase in home loan approvals and new business in mortgage lending, individuals in Germany still struggle to secure construction loans due to rising construction costs. In response to this challenge, some banks have started offering specialized construction loan products with flexible repayment terms to support homebuilders.
