1. What can we learn from the Germans?
Joachim Michel (Head of Consumer Banking NIBC Bank Germany)
Michel Kant (Head of Consumer Banking NIBC Bank)
February 2013
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2. Germany
 Pre crisis several Dutch mortgage lenders have started
originating in Germany
 Germany was attractive because of the size.
Furthermore it was perceived as a traditional market
that was lagging in comparison to other markets
 The reality after a few years of crisis: Germany is in a
far better shape than the other European markets
 What is the secret behind the success of Germany?
* Dr. Klein: Trendindikator Baufinanzierung 09/12 and 11/12, all figures relate to 2012
** Immobilien & Finanzierung 17-2011, p. 582-583
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3. What can we learn from the Germans ?
Nominal house price development in Europe
The German housing
market is the
exception to the
trend: its price has
remained stable over
time and is slowly
increasing
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4. What can we learn from the Germans ?
Gross new mortgage lending in Europe
The mortgage
volume of new
mortgages has
decreased since the
crisis in all
European countries,
except Germany
whose new mortgage
volumes remained
stable
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5. What can we learn from the Germans?
Interest rate 10 year fixed
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Substantial lower
mortgage rates in 5
comparison to other
countries 4
3
2
1
0
2005 2006 2007 2008 2009 2010 2011 2012
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6. Market characteristics
 80 million inhabitants
 Mortgage balance outstanding EUR 918 bn
 Savings balance outstanding EUR 1970 bn
 Owner occupied is 46%
 Prime market
 Key differences with The Netherlands
1. Less government support
2. More conservative products
3. More traditional distribution
4. More regional differences
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7. 1. Less government support
The tax system is not  In Germany, only mortgage interest payments for
attractive for owner investment properties are deductable from taxable
occupation income
 Hence, compared to other jurisdictions the speculative
character of property ownership in Germany is limited to
rent income from investment properties (tax deductibility
of mortgage interest payments)
 From a tax perspective, the holding period for real
estate (investment and owner occupied property) ought
to be 120 months (10 yrs.) to avoid gain on capital
taxation
 The fungibility of real estate is therefore lower since
there are no short and midterm tax free capital gains
achievable
 For consumers real estate always is a longer term
investment
* Dr. Klein: Trendindikator Baufinanzierung 09/12 and 11/12, all figures relate to 2012
** Immobilien & Finanzierung 17-2011, p. 582-583
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8. 2. More conservative products
Past experience has  The German mortgage market is a purely prime
shown that pure high market with fairly standardised products
LTV lending does
not seem to be an  75% of the mortgage loans have an annuity
option in the repayment method with loan maturities of 30 to 35
German mortgage
years
market
 Only a few years back, a bank’s typical requirement
for borrowers was to provide 20% equity. Today, there
are only a few mortgage banks that originate loans
with higher LTVs
 However, the majority of loans still follows this 80-20
rule
Characteristic Value
Average LTV new loans 78%
Average age first time buyer 38 years
Average amount new loan EUR 159.000
Average fixed interest term 12 years
* Dr. Klein: Trendindikator Baufinanzierung 09/12 and 11/12, all figures relate to 2012
** Immobilien & Finanzierung 17-2011, p. 582-583
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9. 3. More traditional distribution
Independent  Germany has a very fragmented banking market. In
brokers are finally 2005, 2340 banks existed including 490 savings banks
established in the and 1390 cooperative banks
German market.
However, still
strong  Distribution of mortgages is dominated by banks with a
concentration on market share of 78%; in the intermediary market Hypoport
traditional banks and Interhyp have a substantial market share
due to high
expertise.
 Commission payments to intermediaries is still allowed
 During crisis many customers turn to their local
cooperative banks and savings banks to deposit their
funds in presumably safe havens allowing them to offer
extremely competitive mortgage rates
* Dr. Klein: Trendindikator Baufinanzierung 09/12 and 11/12, all figures relate to 2012
** Immobilien & Finanzierung 17-2011, p. 582-583
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10. 4. Regional differences
.
 The price for a detached single family
house clearly depends on the region
 The wealthier the area, the higher the
price for a house
 Prices are lower in the East, gradually
increasing going from East to
North, down to the West and South
 Prices are generally higher in the city in
comparison to the country side
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11. Key drivers of German mortgage market stability
“Home sweet home – a place to stay”
 Property has not been an asset for speculation
– A home is rather (made) a place to stay
 Conservative credit attitude – no “exotics”
– Variable rate products hardly offered by traditional banks that still dominate the
market
– Low LTVs with annuity mortgage dominating the market
 House price development is fairly stable
– Price development has not given much room for speculation
– Inflation stabilises the price level and may trigger further increase
 General economic development in Germany
– Germany has so far managed to mitigate the burden of the crisis
– Unemployment is at a moderate level
 Access to stable funding via Pfandbrief
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12. Key driver of German funding market
Pfandbrief as most stable funding source
 Majority of the German mortgage lenders attract funding on the Pfandbrief market
 Pfandbrief is similar to Dutch Covered Bond: a bond issued by a bank secured with a
collateral pool of mortgages
 Differences with the Dutch Covered Bond:
– Long history of 240 years without any losses
– Incorporated in the German law
– LTV maximised at 60%
– A lot of liquidity in the bonds
– Strong standardisation
 Resulting in cheaper funding than RMBS or Dutch Covered Bond (up to more than 1%).
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13. Conclusions
 Lessons learnt from the German market:
– Standardise the mortgage and funding market as much as possible
– Remain conservative and avoid any exotics
 The Netherlands is already in a transition phase towards the German market
– Reduction of interest deductability
– Annuity becoming the leading product
– Gradual reduction of LTV level
– Foundations created to standardise RMBS and Covered Bond
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