Macroprudential instruments to address systemic risks arising from the real estate market

BaFin can impose restrictions on credit institutions that grant loans for the construction or purchase of residential real estate located in Germany in order to counteract any disruption to the functioning of the financial system or a threat to financial stability in Germany. In particular, this may be necessary if residential real estate prices and new lending for the construction or purchase of residential real estate are rising sharply and lending standards are being significantly relaxed.

Lending can be restricted by:

• Capping the ratio of a borrower’s total debt in a residential real estate loan to the market value of the residential real estate when the loan is granted (loan-to-value ratio)
• Setting a final deadline for the repayment of a certain portion of a loan or, for bullet loans, setting a maximum maturity (amortisation requirement).

These instruments are governed by section 48u of the Banking Act. When specifying any such restrictions, BaFin can also specify, among other things, what proportion of a lender’s new residential real estate lending business is not subject to the specified restrictions (excess quota) and up to what loan amount one or more restrictions will not apply (de minimis limit).

LTV limit and amortisation requirement