Photographer: Ulrich Baumgarten/U. Baumgarten via Getty Images

Germany Strives to Avoid Housing Bubble by Forming New Policies

The German government, after years of warnings, is about to clamp down on rising home prices and mortgage lending.

The government is preparing to implement measures to prevent real estate bubbles, the Finance Ministry said in an e-mail late on Wednesday. These policies may include capping borrowers’ loan-to-income ratio in order to reduce the probability of default, Handelsblatt reported on Thursday.

The government continues to study the consequences of low interest rates on financial stability, a finance ministry spokesman said in the e-mail. However, there are currently no signs that German residential real estate lending is causing acute risks, he said.

With mortgage rates at record lows and savings accounts earnings almost nothing -- thanks to a string of European Central Bank rate cuts -- Germans are buying homes at the fastest rate in decades. That’s pushed prices in cities including Berlin, Hamburg and Munich up by more than 30 percent in five years. New mortgages jumped by 22 percent in 2015 after five years of rising at 3 percent or less, according to the Bundesbank.

In March, Bundesbank board member Andreas Dombret said he sees “clouds gathering on the horizon” and that the central bank is keeping a close eye on mortgages. Finance Minister Wolfgang Schaeuble, who has been critical of the ECB’s policy of pushing growth with cheap cash, in December said the hunt for yield could lead to the “formation of bubbles and excessive asset values.”

A regulatory committee, made up of Finance Ministry, Bundesbank and Federal Financial Supervisory Authority officials, proposed new rules for damping real estate lending last year. Its recommendations will form the basis of any new tools, the government has said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE