Low interest rates burden the business of building societies

Berlin – The low-interest-rate phase continues to make life difficult for building and loan associations: New home loan and savings business in 2017 was unable to match the previous year’s results. This was announced by the Association of Private Building Societies.

News / Mortgage lending

Image: Blackboard with inscription "Bauspar" Image: © Doc RaBe / fotolia.com / Text: dpa

The whole industry is under pressure: Legally high-interest legacy contracts do no good business, especially as customers do not call for loans under these contracts – because the long-term lending rate for them is high and therefore unattractive. This inhibits the money cycle in the Bauspar business model, in which customers first provide money as credit but then borrow money as credit.

There are 20 building societies in Germany. The Private Sector Association includes industry leader Schwäbisch Hall, Wüstenrot and BHW as well as smaller institutions such as Aachener Bausparkasse. In addition there are the Landesbausparkassen, of which the LBS Südwest is the largest. This LBS reports new business at the previous year’s level for building society savings in 2017. Wüstenrot at least speaks of a small plus.

Banks hope for rising interest rates

Banks hope for rising interest rates

What’s next – comes a turnaround in sight and thus a better time? The bankers hope for that. For example, Wüstenrot CEO Bernd Hertweck expects a slight increase in interest rates on the financial market in 2018, which could intensify in 2019. This will have an impact on his industry. “Customers are aware that interest rates could rise again,” says Hertweck. He assumes that in 2018 more customers sign a home savings contract to secure the currently still low loan interest rate.

The hope for higher interest rates on the financial market is borne by the whole industry. According to the Association of Private Bausparkassen: “The moment the interest rate turnaround on a broader front is felt again, the interest rate hedging argument should become significantly more important again and then be reflected in new business.”

Construction financing is doing well

Construction financing is doing well

While last year’s Bauspar new business was modest, the sector posted strong growth in a new branch of business for the coffers: mortgage lending. This lending has only been possible for the health insurances on a large scale for two years, at that time the legislature jumped in the ailing sector and expanded its business field.

Things are going well here: Schwäbisch Hall exceeded its own expectations, the LBS Southwest spoke of a significant increase – both institutes did not give any figures. Wüstenrot reports an increase in new home loan financing of around five percent in 2017. Reason: Customers need money for investment in real estate.

Houses for young families priceless

Houses for young families priceless

But here too there are worries. Because the construction boom and rising real estate prices increase the demand for loans. But: “For us that’s more of a curse than a blessing,” says the Wüstenrot boss. Because of the low-interest phase, more and more capital flows into real estate, which in turn would make many houses and apartments priceless for young families. However, such young families are now the core clientele of the building societies – in the long term, this is in many ways a critical development, said Hertweck.

The banker appealed to politicians to finally worry about relief on the cost side. It would be helpful, for example, if first buyers of real estate – so often young families – would not have to pay land transfer tax. “The hurdles to take part in the home ownership boom are far too high – you can not enjoy your own home because you can not do it because of the increased costs and prices.”