Sentiment among German lenders holding up during second COVID wave

Sentiment among German real estate financiers in Q4 remained almost unchanged from the previous quarter, although at least the partial lockdown (‘Lockdown Lite’)in November failed to cause a renewed slump in the prevailing mood, according to the widely-tracked BF.Quartalsbarometer. It remains to be seen how the latest full lockdown to span Christmas and the New Year influence lenders perspectives.

At a current barometer value of -8.08 points, down from -7.97 in the previous quarter, the value is still well above the negative record of -15.24 point set in Spring 2020.

The stagnation is due to the general market perception being no worse than in the previous quarter, with 50% of respondents saying they still expect new business to stagnate.

BF.direkt AG’s CFO Manuel Köppel said of the latest reading: “Market participants have adjusted to the corona pandemic. So it’s not surprise that the current barometer value has hardly changed compared to August when the pandemic seemed to have almost disappeared. There are also continuing positive signals in the market – new business seems to be picking up slightly and at least liquidity costs are no longer rising

Financing margins increased in the fourth quarter, rising from 148 to 150 basis points for portfolio financing and from 226 to 234 basis points for financing project developments. In return, the loan-to-value (LTV) for portfolio financing and the loan-to-cost (LTC) for financing project developments fell. The average LTV fell to 66.7% (Q3/2020: 67.4%) and the LTC to 72.5% (Q3/2020: 73.1%).

Professor Steffen Sebastian of the IREBS at the University of Regensburg and scientific advisor to the quarterly barometer, commented: "Overall, margins have risen by around 30 basis points since the outbreak of the crisis. On the one hand, this shows that lenders assess the risks as higher than before the crisis and also price this in. On the other hand, the increase is also an indicator that undercutting competition in the real estate financing market has decreased.

There is little movement in the liquidity costs - the costs that banks have to pay for their own refinancing – with the overall picture balanced. At 60% (+11.9 pp), most respondents expect stagnation. The share of those expecting rising refinancing premiums has decreased considerably - compared to the peak of the crisis in Q2 - and has fallen from 83% in Q2 to 16% percent in Q4. One quarter (24%) of the respondents are currently seeing refinancing premiums decline.

Not surprisingly, large-volume loans are currently in short supply on the market. The large loans with a volume of more than €100m are insignificant at -3.7 pp to 0%. Small loan volumes of up to €10m, together with medium loans of €10m to €50m, represent the most common loan sizes (38.5% each). 

In terms of types of use, it is apparent that hotel properties, both in the portfolio and in project developments, are being barely financed at all. Only around 19.2% of the institutes surveyed finance hotels (existing assets). Before the outbreak of the corona pandemic in the first quarter of 2020, around 62.5% had financed hotel properties.

The BF.Quartalsbarometer is published by Stuttgart-headquartered financial specialist BF.direkt, and is compiled by market researchers Bulwiengesa, using a proprietory calculation of various individual inputs.