Private construction financing is a very important line of business for banks and savings banks. However, the figures now published for the end of 2022 do not bode well. The private construction financing business has literally collapsed. The last time the situation was similarly bad was in 2011. The decline in new customer sales is having a lasting impact on credit institutions, no question about it. We have the information for you.
November down 39 percent year-on-year
Analysis firm Barkow Consulting has published loan volumes for November 2022. It turned out that the month was even worse than September and October. Private real estate lending has plummeted 39 percent compared to November 2021. In 2022, banks and savings banks granted "only" 13.6 billion euros in loans for private construction.
If you look at the decline in construction financing within the last year, the decline in private construction loans in Germany becomes even clearer. In March 2022, lending was still at a record 32 billion euros, ergo the volume has fallen by 60 percent. The last time there were similarly poor figures for new lending was in June 2011.
Figures already in the cellar in September and October
Barkow Consulting provides the monthly analysis based on figures from the Bundesbank and the European Central Bank. The analysis firm has already had to report negative records for fresh loans in previous months. In September, there was a slump of 28 percent, and in October a decline of 32 percent, both in relation to the figures for the previous year.
The reasons for the slump in real estate financing
The reasons for the decline in private real estate lending are manifold. There are several reasons for the decline in customer interest. First and foremost, there is certainly the general world situation, which is causing uncertainty in large sections of society. Numerous young families are currently asking themselves whether they want to take on a credit risk or not. can. Is one's own job safe?? Is the livelihood secured for the coming years? Can the loan installments actually be paid? Quite a few prospective builders have put their actual new construction projects on hold – at least for the time being.
Interest rates have risen rapidly
The second reason is, without question, interest rates. Construction interest rates are up nearly 4 percent compared to the start of 2022. At times, the figure was even above the threshold of 4 percent. The European Central Bank has successively increased key interest rates since summer. The effect on construction interest rates was to be expected. Looking at the ECB's current approach, combined with still-high inflation, it is likely that the prime rate – and therefore construction rates – will rise even further.
Building has become more expensive
The development of the cost of construction has also had a negative impact on mortgage loan origination. Building materials have become significantly more expensive in the past few months due to inflation. Anyone planning a new building today has to dig deeper into their pockets than just a few months ago. There are also supply shortages for some materials, which are also reflected in construction pricing.
Decline not yet noticeable on bank balance sheets in 2022
Construction financing weakness hits savings banks and banks. However, the decline will not yet show up on lender balance sheets in 2022. Fact is, private home loans take up 43 percent of the loans on the loan books of banks here.
Businesses are still benefiting from the construction boom, which has continued into early summer 2022. Banks made record amounts of construction loans in the first two quarters of the year. According to the Association of Volks- und Raiffeisenbank, the annual statistics for private construction loans are thus still expected to show a plus of 6 percent. 2023 will of course be a different story. The outlook is rather gloomy. In its comments, the Savings Bank Association clarified that, in addition to the indicators mentioned above, increased bank capital requirements have negatively impacted the lending business.
The total volume of open construction loans granted in Germany was 1.55 trillion euros in September 2022, at an all-time high.