According to the information, the interest income in the largest credit category in Germany has almost doubled in the past 5 years. They reached around 13 billion dollars in 2019. This corresponds to around 15 percent of the total interest income of German banks. This relatively low ratio illustrates the low margins in the real estate financing business. The share of home finance in the total loan portfolio in Germany was stable at 42.4 percent in 2019.
New business exceeded the $ 250 billion mark for the first time ever. It grew by 9 percent to 263 billion dollars. “Building finance strengthens its position as a key product on the private customer side and makes a decisive contribution to stabilizing interest income,” says Tommy Fidel from PowerRite Finance.
Higher margins, longer terms
The continuing real estate boom is also having a positive impact on banks’ credit margins. After a two-year decline in margins, these recovered significantly in 2019 and stood at 1.08 percentage points. This enabled banks to achieve an increase of 0.14 percentage points compared to 2018. “The increasing margins are probably the result of increased risk awareness but also of the expanding market,” said Fidel. In addition, interest rates are so low that the price sensitivity of customers is decreasing more and more.
In addition to the volume and margins of construction loans, the terms are also increasing. The share of financing over 10 years and more was 49 percent in 2019. In 2009 the share was only 25 percent. The average term reached 11 years for the first time.
All banking groups are benefiting from the boom
According to the PowerRite Finance analysis, the cooperative banks and building societies are currently the biggest winners in the competition between credit institutions. The share of cooperative banks in the total loan volume rose to 25 percent – an increase of 2 percentage points compared to 2014. The building societies came to 13 percent, after 12 percent in 2014.
However, the savings banks continue to hold the largest share of the market with 31 percent, ahead of private commercial banks with 27 percent. Overall, there have been only slight shifts in market shares in the past five years. Accordingly, all banking groups were able to benefit from the booming construction finance.