German property buyers take out record number of mortgage loans

2021 is shaping up to be a record year in Germany for the amount of money borrowed by house-buyers, according to consultants PwC, who track the financial institutions granting mortgage loans.

PwC say that new home lending business came to more than €170bn between January and July, topping last year's €162bn for the same period. Over the full year of 2020, total new lending was €273bn - the highest volume since records began.

So far this year, the banks' real estate lending is growing at an average of 7.3% this year, after 6.6% growth last year, making it the largest and fastest-growing lending category for the German banks and Sparkassen. The various institutions now have a total lending book of €1.44 trillion.

According to PwC's partner and head of financial services Tomas Rederer, "In view of the favourable interest rate environment and the development of property prices, the strong growth in German construction financing business is likely to continue for the time being," However, competition for customers is also heating up, he said. "Banks need digital platforms and modern data analyses to be able to actively accompany their customers in all phases of the real estate buying process."

The heightened competition is leading to falling margins on lending. The PwC study shows that the net profit margin after refinancing costs was still 1.12% on average last year, whereas now it is only 1.05%. With interest rates rising overall recently, banks often find it more difficult to push through higher interest rates onto customers, said Rederer.

The savings banks (Sparkassen) still have the largest market share in the private real estate lending business in Germany, even though their share of the total business volume recently fell slightly to 30.8%. Private banks follow in second place with 26.6%, and cooperative banks (Volksbanken and Raiffeissenbanken) in third place with 25.1%. Building societies (Bausparkassen) have a market share of 12.6% of the mortgage lending market, the study shows.