Demand for loans is increasing
Consumers are again interested in owning their own home
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Interest rates on real estate loans have recently fallen again. This obviously motivates many people to become interested in their own four walls. In July, consumers asked for more construction loans than they did over two years ago.
Consumers in Germany requested more real estate loans in July than in two years. New business by German banks with private households and the self-employed rose to 19.5 billion euros, a good quarter more than in the same month last year. The volume was last larger in July 2022, according to an analysis by the analysis company Barkow Consulting, which is based on data from the European Central Bank. New business in construction financing had already recovered in June with growth of 17 percent compared to the same month last year to 16.3 billion euros.
Apparently rising rents and a recent fall in interest rates have revived the collapsed market for construction financing, writes managing director Peter Barkow. “The upswing is here.” So far this year, new business of 112 billion euros is already almost a fifth (18 percent) higher than the previous year. Construction interest rates have recently gone downhill: the conditions for 10-year loans are currently below 3.5 percent again, after highs of 4.2 percent in the fourth quarter of 2023, says Barkow.
Upswing in the real estate market
New business with private construction financing boomed until spring 2022 and reached a peak monthly volume of a good 32 billion euros. But a sharp rise in interest rates ended the rise. This meant that real estate loans became more expensive after years of low interest rates. Since construction costs also rose sharply, many people gave up their plans to build a house or buy real estate. Last year, according to data from Barkow Consulting, banks' new business with construction financing collapsed to 161 billion euros – 37 percent less than in 2022.
The Association of German Pfandbrief Banks (VDP), which represents the most important real estate financiers in Germany, also recently noticed an increase in lending business. It recorded the largest new real estate loan business since the third quarter of 2022, driven by stronger demand for financing for houses and apartments. There are increasing signs of an end to the real estate crisis. The VDP only recently noted a stabilization in real estate prices in the second quarter.
