The Regulation on the Determination of the Mortgage Lending Value (BelWertV) came into force on 1 January 2009. August 2016 into force and provides binding regulations for all mortgage banks in Germany. Other credit institutions are also guided by the requirements. Until now, banks have developed their own rules for determining the mortgage lending values, which in turn had to be approved by Bafin.
However, the real estate boom of the last few years has changed the market and therefore the Regulation on Mortgage Lending Values is to be amended. The German financial regulator Bafin proposes measures for the amendment, but the German Association of Pfandbrief Banks (vdp) does not agree with the proposed measures. According to the vdp, the measures are still insufficiently adapted to the current real estate market developments.
According to the managing director Jens Tolckmitt, Bafin fails to achieve its goal of adapting the Regulation on Mortgage Lending Values to the market reality. If the rules were to be adopted as Bafin proposes, the opportunity to carry out the much-needed renewal of real estate valuation would be missed.
The objectives of Bafin
The current Regulation on Mortgage Lending Values (Beleihungswerteverordnung) states that, when valuing income properties, management costs (administrative costs, risk of loss of rent, modernization risk, non-allocable operating costs) must be deducted in the amount of at least 15% in relation to the gross income.
Bafin plans to remove modernization risk and non-allocable operating costs from the 15% minimum approach. These would still have to be additionally deducted.
According to critics, especially for operator properties such as hotels or shopping centers, a new regulation would lead to significant additional deductions and to even lower mortgage lending values and this in turn would not be reasonable or appropriate.
In addition, Bafin wants to include another innovation in the BelWertV. Banks should establish an annual review mechanism. This would require banks to periodically review the basis for determining the loan-to-value ratio. For example, according to the vdp, banks would incur massive additional costs for administrative activities, which in turn would have an impact on financing conditions.
So far, it is the case that for loan amounts that exceed 400.The German banking industry has issued a statement on Bafin's comments: If the value of the asset does not exceed EUR 000, an expert opinion in accordance with the provisions of the BelWertV by an appraiser or expert is not required. Under Bafin's proposed measures, this so-called small loan limit of 400.000 to 500.000 euros to be raised.
The reason: according to the vdp's own home survey, financing for one- and two-family homes is up to 23 percent already over 500.000 Euro.
Critics welcome the proposal, but believe it does not yet take into account realities in many regional housing markets. The vdp calls for an increase in the small loan limit to 600.000 euros.
Criticism of the amendment to the Regulation on the Determination of the Mortgage Lending Value
According to the vdp, the proposed amendments even increase the already large amount of documentation and research required to determine mortgage lending values in credit institutions. The proposed amendments are also expected to lead to even lower mortgage lending values than before. The gap between real estate market values and loan-to-value would widen.
If the vdp has its way, the Regulation on Mortgage Lending Values should not be tightened further, as the LTV continues to fall. The BelWertV has been a stabilizing factor for the German Pfandbrief system in recent years, even in extreme market situations such as the 2008/2009 financial crisis.
The German banking industry has issued a statement on the Bafin's comments. Here, the biggest criticism was directed at the calculation parameters and, in particular, minimum capitalization rates. "They are sticking to rates from the 60s and that is not comprehensible".
In addition, the opportunity has not been seized to align procedural differences and adequately integrate the possibilities of digitalization. The amendment contains many small changes that only trigger additional work, but do not create any added value.