According to quarterly bank surveys by the ECB, German credit institutes actually have clearly toughened up their lending
conditions since March. Moreover, according to the German Bundesbank, the volume of newly issued residential mortgages was
lower in most months since March than during the same period of the previous year. However, since the volume of new lending
increased sharply in 2015, the recent, more unfavourable development probably also goes hand in hand with a normalization
in the credit market. The actual implications of the new EU directive are not clearly discernible as a result.
Nevertheless both statistics suggest that the new regulations on borrowing have a negative influence. However, it is not yet clear whether this is merely a temporary effect, i.e. whether smaller banks will come to terms with the new regulations over time. Against this background, the larger banks have recently been quick to point out that their creditworthiness checks already met high standards. They only had to adapt their lending procedures slightly to comply with the new rules as a result and also see just like the German National Consumer Advice Centre far less need for legislative change.
In the meantime, several German Länder have launched an initiative to improve the current legal situation. The probability of repayment is to be clarified and future developments in salary are to be taken into account. Furthermore, exceptions shall be made for older mortgage applicants who wish to conduct building work to make their homes suitable for the elderly. However, there are certainly other changes needed such as, for example, ensuring that the borrower stipulated in the mortgage contract is not the only person allowed to repay his/her debts. The German government has at least declared its willingness to cooperate in order to remove the uncertainties for banks. One of the solutions discussed features a legal clarification whereby lenders should meet all of their obligations if they have complied with the interpretation of financial supervision.
It remains to be seen how quickly banks will throw off their caution in granting mortgages. In all events, it is clear that the implementation of the new EU regulations has impeded the financing of several new-build, conversion and renovation projects in Germany, at least temporarily.
According to our assessment, the new legal framework to date has negatively impacted mainly projects on existing buildings with older owners. Older owners namely suffered a triple punishment: the value of their property no longer justified a mortgage per se, as a result their relatively low pensions compared to their previous earnings further reduced their creditworthiness, and their lower residual lifespan also posed an additional barrier to obtaining a mortgage. This could negatively impact the growing market for renovation measures for making homes suitable for the elderly. On the other hand, the speedy abolition of this new form of age discrimination is high on the political agenda. So the negative implications for the renovation market may ultimately be limited.