Federal government project: Regulation of real estate loans
Real estate loans are not only popular with those who want to finance a home. Real estate owners also apply for such a loan for renovations and refurbishments. The federal government is now planning new regulations. One of these is that borrowers should repay the loan amount within a certain period of time. This is intended to counter a real estate bubble.
Draft law regulating real estate loans
Last week in Berlin, Reuter said that a new draft law regulating real estate loans should follow the advice of the Financial Stability Committee. A real estate bubble is not yet in sight. However, the draft law should prevent the risk of being subject to such a bubble. In the event of an undesirable development, the federal government wants to take precautions. An amendment that goes along with the draft was to increase the conditions for approval of the loan application.
Contents of the draft law
Preventive measures to be taken by such a draft law are characterized by the following features:
- Upper limit: So far, real estate financing had no limits. Depending on the income or existing collateral, borrowers were able to get as much funding as possible. However, the draft law aims to set an upper limit for debt financing.
- Repayment period: In addition, the federal government wants to set a time until when borrowers have to repay a certain portion of the real estate loan.
- Increasing the prerequisites: Furthermore, the prerequisites for getting a loan application to be increased. Income should become more important when approving a loan.
The bill will be adopted in the next parliamentary term and prevent the risk of a real estate bubble.
Small loan scheme
In addition to regulating real estate loans, the draft should also include criteria for small loans. The federal government primarily wants to introduce a trivial limit. On the other hand, existing loans should not be changed with their contractual terms. In addition, banks should also be given some leeway. This means that financial institutions can grant loans that are not covered by the new regulations.
The aim of this is to protect the banks in their business plans and to provide a certain degree of stability.
Rules depending on the market
However, the specification of the regulation of real estate loans depends on market developments, the government said. In order to be able to intervene accordingly, it is the task of the Bundesbank and the financial supervisory authority to control the market situation and to pass on information. The Committee on Financial Stability, which includes not only representatives of the Ministry of Finance, but also representatives of the Bundesbank and BaFin, recommended the right to intervene in 2015. This was to prevent the real estate market from being overloaded. Over-indebtedness should be avoided by preventing the real estate bubble. The Federal Government is following the examples from Ireland and Spain. The two countries have shown in the past that it makes sense to introduce such precautionary regulations.