Kai Hartmann Photography / BaFin
BaFin's offices, Frankfurt am Main
Germany’s financial regulator BaFin has eased one of the key capital buffers that banks must hold against residential mortgage lending, in a move aimed at freeing up credit as the housing market shows tentative signs of recovery. From 1 May, the sectoral systemic risk buffer — a capital surcharge introduced in 2022 to address systemic vulnerabilities in the housing market — has been cut from 2% to 1%, unlocking up to €2.5 billion in banking capital— roughly 0.4% of total Core Tier 1 capital in the system.
The decision follows a year of improving indicators in residential real estate. After the steep correction in 2022, house prices have turned moderately upwards. Lending activity has picked up since early 2024, and according to the Bundesbank, earlier market overvaluations have now largely unwound. Notably, BaFin sees no evidence that banks have loosened their lending standards—so the revival in mortgage issuance isn’t being driven by looser underwriting.
It’s a significant shift, but not a wholesale loosening of the reins. The 0.75% countercyclical capital buffer introduced in 2022 remains in place. BaFin is still wary of the bigger picture: a sluggish economy, geopolitical friction, and structural problems in key sectors that could spill into the labour market and hit household finances. Insolvencies are rising in the corporate sector. Non- performing loans are starting to tick up. It’s not a moment to be throwing caution to the wind.
The new capital headroom gives banks a bit more breathing space. For now, it’s likely to support continued lending in the residential segment—particularly for standardised loans in stabilised portfolios or for owner-occupiers. BaFin’s broader macroprudential buffers, worth over €20 billion, remain untouched and could still be drawn upon if the market takes another turn.
There’s little in this for commercial real estate, which continues to look strained. Office vacancies remain stubborn, retail has yet to find firm footing, and lenders are staying tight on terms. BaFin has made no secret of its unease about commercial property exposure, and this change does nothing to alter that stance.
Still, the message from BaFin is clear: the worst of the residential downturn may be behind us, and there’s room now to ease up a little—without risking the resilience of the banking sector. This won’t reflate the market overnight, but it’s a step in the right direction. For lenders and investors alike, this is a signal to proceed—confidently, but with care.