Opinion of the European Central Bank of 8 January 2020 on measures limiting macroprudential risks in residential property loans (CON/2020/1)
Date: 2020-01-08
Institutions: European Central Bank
Subjects: Germany, banking supervision, financial solvency, financial stability, national law, real estate credit

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 8 January 2020  

on measures limiting macroprudential risks in residential property loans 

(CON/2020/1) 

Introduction and legal basis 

On 27 November 2019 the European Central Bank (ECB) received a request from the German Ministry of 

Finance for an opinion on  a draft regulation on the implementation of measures to limit macroprudential 

risks in the residential property construction and acquisition loan sector (hereinafter the ‘draft regulation’). 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 

Functioning  of  the  European  Union  and  the  third  and  sixth  indents  of  Article 2(1)  of  Council  Decision 
98/415/EC1,  as  the  draft  regulation  relates  to  the  Deutsche  Bundesbank  and  to  rules  applicable  to 

financial institutions insofar as they materially influence the stability of financial institutions and markets. 

In  accordance  with  the  first  sentence  of  Article 17.5  of  the  Rules  of  Procedure  of  the  European  Central 

Bank, the Governing Council has adopted this opinion.  

1. 

Purpose of the draft regulation 

1.1  According  to  its  explanatory  memorandum,  the  draft  regulation  sets  out  detailed  rules  specifying 

new  measures  available  to  the  Bundesanstalt  für  Finanzdienstleistungsaufsicht  (BaFin,  Federal 

Financial  Supervisory  Authority)  to  impose  certain  minimum  standards  upon  lenders  to  limit 

macroprudential  risks  from  residential  property  construction  or  acquisition  loans,  including 

provisions on cooperation between BaFin and the Deutsche Bundesbank in the adoption of these 

measures. The draft regulation aims to provide commercial lenders with legal certainty in relation to 

these  new  measures  and  the  opportunity  to  prepare  for  their  application,  irrespective  of  which 

instruments are applied in the future. 

1.2  As  regards  cooperation  between  BaFin  and  the  Deutsche  Bundesbank,  the  draft  regulation 

provides that the Deutsche Bundesbank must notify BaFin immediately if it concludes on the basis 

of its financial stability analyses that due to a systemic risk  in the residential property construction 

or  acquisition  loan  sector,  the  functioning  of  the  financial  system  may  be  disrupted  or  financial 

stability  jeopardised.  In  light  of  this  notification  and/or  its  own  observations,  BaFin  may  decide  to 

draft  a  general  administrative  order  (Allgemeinverfuegung)  containing  specific  measures.  Any  

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Council  Decision  98/415/EC  of  29 June  1998  on  the  consultation  of  the  European  Central  Bank  by  national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 

 
 
 
 
 
                                                 
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imposition  of  restrictions  requires  close  collaboration  between  BaFin  and 

the  Deutsche 

Bundesbank, and restrictions must be calibrated in agreement with the Deutsche Bundesbank. The 

Deutsche Bundesbank also is required to assist BaFin with the review which BaFin has to conduct 

at least every six months where restrictions are in place in order to determine if, and to what extent, 

systemic risks still exist and if the related measures are still required. 

1.3  Section  48u  of  the  Law  on  banking2,  Section  308b  of  the  Law  on  insurance  supervision3  and 
Section 5(8a) of the Investment Code4 authorise BaFin to impose certain minimum standards upon 

lenders in connection with the granting of new loans for the construction or acquisition of residential 

property, including an upper limit regarding the ratio between the amount of the loan and the value 

of the immovable property  (the loan-to-value (LTV) ratio) and the specification of a period of time 

within  which  a  specific  proportion  of  the  loan  must  be  repaid,  or,  in  the  case  of  loans  due  for 

repayment on a due date at the end of the term, a maximum term (amortisation requirement). The 

draft regulation provides definitions that  influence the scope of application of any measures to be 

taken.  The  draft  regulation  also  provides  detailed  instructions  on  how  to  apply  the  loan-to-value 

ratio and the amortisation requirement. 

1.4  Section 48u of the Law on banking provides that, if measures are applied, BaFin must specify in its 

general  administrative  order  which  proportion  of  a  credit  institution’s  new  lending  business  for 

residential  property  within  a  specific  period  is  not  subject  to  the  restrictions  established  (‘the  free 

quota’). For this purpose the draft regulation clarifies that this is a uniform free quota applicable to 

all lenders, and specifies further details regarding its application. 

1.5  The  Law  on  banking  provides  that,  if  measures  are  applied,  BaFin  must  specify  in  its  general 

administrative  order  the  loan  amount  up  to  which  one  or  more  restrictions  do  not  apply  (‘the  de 

minimis threshold’), with an upper limit for the share of the loan volume that may be issued under 

the  de  minimis  threshold  in  relation  to  the  total  amount  of  new  residential  immovable  property 

lending business of a single lender during a specific period. The de minimis threshold specified by 

BaFin  must  be  at  least  EUR  50 000,  but  may  be  higher.  Therefore  the  possibility  to  grant  loans 

without restrictions by reference to the de minimis threshold is capped both in terms of the absolute 

amount and by the upper limit on the maximum possible percentage of such loans in relation to all 

new residential property loans granted by a single lender. The draft regulation further specifies that 

the  de  minimis  limit  applies  to  the  total  sum  of  loans  advanced  to  a  single  borrower  to  finance 

residential property.  

1.6  The  Law  on  banking  provides  that,  if  measures  are  applied,  BaFin  must  specify  in  its  general 

administrative  order  the  value  of  the  property  up  to  which  a  loan  is  exempt  from  the  restrictions 

provided  that  the  loan  claims  of  the  lender  are  secured  by  a  mortgage  or  land  charge  on  the 

residential property not exceeding 80 percent of the value of the property (‘the lower threshold’) or 

not exceeding 60 percent of the value of the property (‘the higher threshold’). The lower threshold 

must be at least EUR 200 000 and the higher threshold must be at least EUR 400 000. In order to 

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4  

Kreditwesengesetz. 
Versicherungsaufsichtsgesetz. 
Kapitalanlagegesetzbuch. 

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prevent  circumvention  of  this  threshold,  the  draft  regulation  further  specifies  that  the  total  sum  of 

loans  granted  must  be  taken  into  account.  In  addition,  the  draft  regulation  clarifies  that,  for  this 

purpose,  the  mortgage  lending  value,  which  is  the  current  value  of  the  residential  property 
determined in accordance with the requirements of Section 22 of the Solvency Regulation5, has to 

be  taken  into  account.  The  explanatory  memorandum  further  clarifies  that  the  purpose  of  the 

exceptions  for  these  loans  is  to  establish  legal  certainty  that  well-secured  property  loans  are  not 

subject to restrictions. 

2. 

General observations 

2.1  The  ECB  welcomes  the  fact  that  legal  certainty  is  increased  with  respect  to  possible  restrictions 

imposed  upon  lenders  in  connection  with  the  granting  of  new  loans  for  the  construction  or 

acquisition of residential property.  

2.2  The  ECB  recalls  that,  in  its  opinion  on  the  amendment  of  German  financial  supervisory  law6,  it 

welcomed  the  creation  of  macroprudential  tools  regarding  the  granting  of  new  loans  for  the 

construction or purchase of residential property. Imbalances in the residential immovable property 

sector that could result from overvaluation of residential property accompanied by excessive credit 

provision  can  have  significant  negative  implications  for  financial  stability  and  the  real  economy. 

Against  this  background,  the  core  objectives  of  the  draft  regulation  seem  appropriate,  namely  to 

further specify instruments that enable BaFin to impose certain minimum standards upon lenders in 

connection  with the  issuance of new residential mortgage loans,  with a view to strengthening the 

resilience of the financial system and to counteracting the cyclical build-up of systemic risks, when 

deemed  necessary.  These  objectives  are  also  in  line  with  the  principles  set  out  in  the  European 

Systemic  Risk  Board’s  Recommendation  on 
instruments  of 
macroprudential policy7, in particular with regard to the objective to mitigate and prevent excessive 

intermediate  objectives  and 

credit growth and leverage. 

2.3  From  a  financial  stability  perspective,  the  ECB  welcomes  the  implementation  of  a  legislative 

framework for borrower-based measures in all euro area countries. The measures contained in the 

draft regulation enabling BaFin to create macroprudential tools to counteract potential risks to the 

stability of the national financial system seem appropriate to the extent that they aim at promoting 

responsible borrowing and lending, enforcing market discipline, reducing credit risk and increasing 

the  transparency  of  credit  institutions’  activities.  A  thorough  quantitative  impact  assessment  is, 

however,  important  to  verify  the  effect  and  appropriateness  of  the  draft  law,  as  well  as  a  regular 

review  of  the  LTV  ratio  to  take  into  account  the  implications  of  changes  in  macroeconomic  and 

financial  conditions.  The  scale  of  exemptions  from  the  scope  or  specific  provisions  should  be 

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6  

7  

Solvabilitätsverordnung. 

See  paragraph  2.2  of  Opinion  CON/2017/11.  All  ECB  opinions  are  available  on  the  ECB  website  at 
www.ecb.europa.eu. 
Recommendation of the European Systemic Risk Board of 4 April 2013 on intermediate objectives and instruments 
of macro-prudential policy (ESRB/2013/1) (OJ C 170, 15.6.2013, p. 1). 

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proportionate  to  the  overall  objective  to  be  achieved,  which  is  to  curb  excessive  lending  for  the 
construction and purchase of residential property and prevent over-indebtedness8. 

2.4  The  draft  amendment  to  the  Law  on  banking  on  which  the  ECB  was  consulted  in  2017  included 

(1) the LTV, (2) the amortisation requirement, (3) an upper limit upon the total servicing of all debts 

in  proportion  to  the  borrower’s  income  (debt-service-to-income  –  DSTI)  or,  where  the  borrower  is 

not a natural person (e.g. a company), a lower limit upon the proportion of the borrower’s inflows of 

funds to the borrower’s debt servicing obligation within a specific time frame (debt-service coverage 

ratio – DSCR) and (4) an upper limit for the ratio of overall indebtedness to the borrower’s income 

(debt-to-income  ratio  –  DTI).  Of  these  four  measures  only  two,  the  LTV  and  the  amortisation 

requirement,  were finally adopted.  As previously noted by  the ECB, the four different  instruments 

originally envisaged would allow BaFin to either activate only one or a combination of or all  these 

instruments,  depending  on  the  circumstances  jeopardising  financial  stability.  The  availability  of  a 

comprehensive  set  of  borrower-based  measures,  including  the  income-based  measures,  would 

enable BaFin to respond in a flexible and proportionate way in relation to potential risks to financial 
stability9.  

2.5  As previously noted, there is still a need to ensure the availability of harmonised data on all types of 

relevant commercial lenders whose lending for the construction or purchase of residential property 

is  subject  to  the  instruments  when  activated,  e.g.  for  the  regular  monitoring  of  financial  stability 
risks and impact assessment purposes10. 

2.6  As  previously  noted,  the  general  administrative  order  should  be  simple,  easily  applicable  by  both 

commercial lenders and borrowers and easy to understand11. 

2.7  The  ECB  welcomes  the  role  that  is  assigned  to  the  Deutsche  Bundesbank  under  the  draft 

regulation. The Deutsche Bundesbank is well positioned to provide data and expertise in the sector 

of  residential  property  loans.  Both  Recital  24  of  Regulation  (EU)  No  1092/2010  of  the  European 
Parliament and of the Council12 and the Recommendation of the European System Risk Board on 
the macroprudential mandate of national authorities13 refer to the fact that the ECB and the national 

central  banks  should  play  a  leading  role  in  macroprudential  oversight,  given  their  expertise  and 

existing responsibilities in the area of financial stability. 

2.8  As  a  national  macroprudential  authority,  the  Deutsche  Bundesbank  is  already  responsible  for 
macroprudential tasks in order to maintain the stability of the banking system14. The draft law does 

not  confer  genuinely  new  tasks  on  the  Deutsche  Bundesbank,  but  rather  specifies  certain  new 

macroprudential 

tools 

that 

the  Deutsche  Bundesbank  may  use  when  discharging 

its 

8  
9  
10  
11  
12  

13  

14  

See paragraph 2.3 of Opinion CON/2017/11.  
See paragraph 2.3 of Opinion CON/2017/11.  

See paragraph 2.5 of Opinion CON/2017/11.  
See paragraph 2.6 of Opinion CON/2017/11.  

Regulation (EU) No 1092/2010 of the European Parliament and of the Council of 24 November 2010 on European 
Union  macro-prudential  oversight  of  the  financial  system  and  establishing  a  European  Systemic  Risk  Board  (OJ 
L 331, 15.12.2010, p. 1). 
Recommendation of the European Systemic Risk Board of 22 December 2011 on the macro-prudential mandate of 
national authorities (ESRB/2011/3) (OJ C 41, 14.2.2012, p. 1). 
See Section 1 of the Law on the monitoring of financial stability of 28 November 2012 (Bundesgesetzblatt I p. 2369). 

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macroprudential responsibilities. Consequently, there is no conferral of new tasks on the Deutsche 

Bundesbank which must be assessed for compliance with the prohibition of monetary financing. 

ECB-PUBLIC 

This opinion will be published on the ECB’s website. 

Done at Frankfurt am Main, 8 January 2020. 

[signed] 

The President of the ECB 

Christine LAGARDE 

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