On 26 February, the Federal Council passed the Law on the Residential Property Credit Directive (WKR) so that it came into force on 21 March. This was reported surprisingly little in the media – and if it did, then mostly in connection with the effects on the right of withdrawal of real estate loans. In fact, however, the legislator has created a comprehensive framework for the granting of real estate loans. With this contribution we would like to give an overview.
End with the cancellation joker
The so-called “Withdrawal Joker” has allowed borrowers to withdraw from previous loan agreements, provided that the associated revocation instructions were formulated incorrectly. But that will soon be over. For loan agreements concluded in the period from 1 September 2002 to 10 June 2010, a final deadline will apply until 21 June of this year. For later completed loans the usual cancellation period of 14 days from the conclusion of the contract applies.
Protection of the consumer by the banks
Residential Property Credit Directive resolution imposed on banks to better protect borrowers in the future. This results in several obligations for the financial institutions. Essentially, this includes a detailed examination of whether a potential borrower is able to service his loan over the long term. In addition, banks are required to fully inform their clients about the potential consequences and risks of borrowing.
Some journalists have already commented on this development, devising horror scenarios. Among other things, it was alleged that banks will lend significantly less in the future and that the market will therefore fundamentally change. The real estate bubble in Germany was thus put an end.
However, these journalists do not seem to have considered that the framework conditions have been drawn up by the EU Commission, and thus Germany is not the center of attention. In Germany, banks are relatively cautious about real estate loans. Quite different from countries like Sweden. So far, it has been possible to finance private homes without fixed interest rates and without repayments. Such a practice, which entails enormous financial risks, will be put a stop to it.
What the WKR means for builders and buyers
No question, the residential real estate credit guideline will not pass without a trace on the builders and buyers in Germany. Certainly, some banks will tighten their rules a little and possibly set a slightly higher minimum repayment. In addition, a larger safety buffer should be included in the revenue and expenditure account. So many “tight funding” will then no longer be possible.
However, most of the prospective borrowers are unlikely to change much. After all, German banks have always been among the most cautious lenders in the entire euro area.