Compromise draws nearer for planned credit directives

The German ruling coalition of the CDU and SPD political parties are close to reaching a compromise regarding credit directives, or 'Kreditrichtlinie’, designed to stop Germany’s property market from overheating, according to several people who track the market closely.

The new proposals will be discussed by the Finance Committee in Parliament (Bundestag) on the 30th March. While any new proposals have to broadly adhere to EU benchmarks, the latest raft is designed to be ‘purely precautionary’, according to Parliament.

Instead of the four directives initially suggested, it has now been proposed that Germany’s Federal Financial Supervisory Authority (BaFin) be given the option of implementing two rather than four mortgage lending credit directives in the event of the property market overheating.

Under the new proposals, BaFin would be able to set a maximum limit for mortgage loans, related to the value of a given property. BaFin would also be able to set an allocated timeframe for repaying the loan. Loans of up to €50,000 are expected to be subject to new regulations, as will loans of up to €200,000 when the LTV is less than 80% or loans of up to €400,000 with LTVs that don’t exceed 60%.

The directives, which are issued by the EU in Brussels, came into force in March last year and led to a rapid decrease in the amount of lending for residential property, due to new guidelines regarding how banks verify their customers’ ability to repay their loans, guidelines that many in the industry say make it virtually impossible for some people to get a loan.

Germany’s Sparkassen, or savings banks, have been very vocal in their opposition of the directive due to the impact it has had on their business. For example, between April and December last year, the amount of mortgage lending in the state of Baden-Württemberg fell by 11%. The German Savings Banks Association (DSGV) said that the refusal rate for credit applications in the period rocketed by 25%. The main problem is that existing directives place a greater onus on lenders to verity the ability of their borrowers to pay back the mortgage over its lifetime, thereby subjecting them to complex ‘stress tests’ that are given more weight that the actual value of the property to be financed.

According to Europace, Germany's largest online housing and personal financing transaction platform, would-be buyers aged 40 to 50 and above 60 years old have been the most badly hit by the new measures, with mortgage applications falling by 5.8% and 12.7% for these groups, respectively, in the past year.