PantherMediaSeller/Depositphotos.com
Real estate lending in Germany has picked up sharply, led by a pronounced recovery in the residential sector. According to the Association of German Pfandbrief Banks (VdP), member institutions issued €36.1 billion in new real estate loans in the first quarter of 2025—up 24.5% year-on-year and 19.1% compared to the previous quarter. But while the figures mark the strongest financing quarter since early 2022, the rebound masks deeper concerns about structural bottlenecks—especially in housing supply.
“The residential real estate financing market in particular picked up noticeably at the beginning of this year,” said VdP CEO Jens Tolckmitt. Demand is returning, prices are stabilising, and in some segments—especially multi-family housing—investors are once again active. Yet the slow pace of new construction continues to constrain the market’s recovery potential. “The shortage of housing is growing,” Tolckmitt warned. “We need committed, supply-oriented incentives for new housing construction.”
Multi-family lending surges, led by investor demand
New loans for residential property reached €24.4 billion in Q1, up nearly 32% year-on-year and over 35% quarter-on-quarter. The biggest gains came in the multi-family segment, where loan volumes jumped 51.2% to €6.5 billion. All other residential categories posted double-digit increases as well.
Buy-side sentiment has shifted quickly. “We are seeing a rush to buy ahead of time due to fears of higher interest rates,” noted Stefan Münter, Co-CEO of financing platform Europace, at a recent press roundtable hosted by von Poll Immobilien. Activity is especially strong in commuter belts and second-tier cities, rather than the traditional metro hotspots.
According to Lucie Lotzkat of von Poll Finance, older, energy-inefficient housing stock is now attracting bargain-seeking buyers—often with significant room for negotiation. New-builds, on the other hand, remain scarce, a view echoed by Daniel Hendel of Immoscout24, who noted that “the fact that demand for residential loans is not even higher is primarily due to the lack of suitable properties.”
The VdP’s price index confirms the broader trend: residential property prices rose 3.6% year-on-year in Q1 2025, the strongest gain since mid-2022. Multi-family homes led the surge with an average price increase of 4.8%. In the seven largest metropolitan areas, prices rose even faster—up 4.6% on average, with Frankfurt and Cologne topping the list at 5.2%.
Dr. Michael Voigtländer of the German Economic Institute (IW) sees little chance of a near-term rate cut, but says buyer psychology is adjusting. “The prevailing mood is no longer that it is worth waiting,” he noted. “I believe that many people are getting used to the higher interest rates.”
Supply constraints risk blunting the recovery
Despite the headline recovery, the lending surge has not been matched by a revival in construction. In fact, new project pipelines remain worryingly thin. According to the VdP, the current upturn in residential lending is largely volume-driven, not underpinned by a material expansion in the number of housing units being built. While prices are rising, developers remain cautious—held back by high costs, volatile regulations, and still-muted buyer absorption in new-build segments.
Commercial real estate lending, meanwhile, remains subdued. VdP banks issued €11.7 billion in commercial loans in Q1—up 11.4% year-on-year, but down 4.9% from Q4 2024. Price growth in office and retail segments continues, albeit at a more modest pace: office prices rose 2.4% year-on-year, while retail was up 2%. Yields have stabilised slightly, but market momentum remains fragile.
On the rental side, the picture is similar. Rents for multi-family homes rose 4.3% nationwide, and nearly 5% in Berlin. But rising capital values are outpacing rental growth, especially in high-demand metros—compressing yields. The VdP yield index showed a 0.4% annual drop in returns on rental housing, the first such decline since mid-2022.
Tolckmitt remains optimistic about the residential segment but cautions against complacency. “The price trend at the beginning of the year is positive, but it should not be overestimated,” he said, pointing to geopolitical risks and pending policy decisions—many of which only emerged late in Q1—as factors not yet reflected in the latest index data.
For Germany’s real estate lenders, the outlook has improved. Liquidity is returning, investor interest is reviving, and price confidence is building. But unless the policy environment becomes more predictable—and new supply begins to catch up with capital—this recovery risks stalling before it can take hold.