On 21 March the Residential Property Credit Directive came into force. With the “WoKri” change some rules of the game for banks and intermediaries. But even borrowers have to get used to new, heavier acceptance criteria.
The guideline also raises questions: Does it serve the legislature as a brake on price developments on the German real estate market? And lurk in the bill new supreme court risks for the financial sector? Can the health status of an applicant in the future be the subject of the credit assessment?
What does the residential real estate credit directive provide?
The “Law on the Implementation of the Mortgage Credit Directive and the Amendments to Commercial Law” adopted several areas of the credit market at the same time. At this point only for the sake of completeness mentioned: Banks must provide their customers with permanent use of discretionary loans in the future counseling and borrowers can from now on (from the end of June) no longer on the “perpetual right of withdrawal” in Reference to credit agreements with incorrect cancellation policy invoked.
The law henceforth distinguishes between “general-consumer loans” and “real-estate consumer loans”. According to 491 (3) BGB, the latter are loans which are either secured by a mortgage or a real burden or (!) For the acquisition or preservation of ownership of real estate, existing or buildings to be built or for the acquisition or preservation of land rights.
This means that a loan is classified as a real-estate consumer loan contract, even if there is no mortgage collateral, the loan but z. B. is used for the construction of a carport or a conservatory. This innovation could lead to curious rejections of credit applications: If a client identifies a real estate purpose in the application to the bank, the bank may be inclined to reject it if real estate loans are not part of the portfolio belong. As far as we know, banks have been marketing their products for a few days, but this is not the case.
New rules also for intermediaries
Another innovation provides for a separate license for real estate lenders more precisely: real-estate consumer loans. However, there are exemptions and transitional provisions so that private customers must only be aware of the existence of a license in accordance with the trade regulations from March 2017. The license may also provide fee-based advice.
Banks must scrutinize lending more rigorously
Legislators want banks to be more involved in the credit assessment process: banks should be able to look very closely and, if they fail to meet their obligations, to cancel the loan without incurring indemnity and indemnification the reduction of the interest rate must be accepted. However, the legislator avoided concrete rules with regard to the acceptance criteria, thus creating the de facto precursor to a legal gray area with final interpretation for the case-law).
Extensive prohibition of tying
There is also a need for interpretation with regard to the prohibition of lending transactions with real estate loans. The legislator has inserted 492 a and 492 b into the BGB. Among other things, the demand of the lender after the conclusion of a “relevant insurance”, if the borrower is allowed to conclude this with another provider, is generally admissible.
This raises questions: If the legislature had had exclusive focus on homeowners’ insurance, the wording would probably have been correspondingly more precise. Can a bank make the conclusion of an occupational disability insurance a condition for a real estate loan in the future? Then, if necessary, can borrowers with previous illnesses or over a certain age no longer receive a loan?
What changes for borrowers?
Borrowers must reckon with a harder examination of their concerns. Banks should calculate more accurately than previously, whether a property can be financed with the prospective pension of the applicant, whether the price of the object is not too high and whether the lending does not require more capital than before.
The law prohibits banks to base their credit rating primarily on securing the loan through the property. In concrete terms, this is likely to mean that the borrower for borrowing will decline, the capital requirements and equity ratio will increase, and the appropriateness of the purchase price will be more critical.
More “paperwork” is another consequence. In extreme cases, the cooperative banks have calculated up to 250 pages of legally required information. Such consequences are known from other changes in the law. An overload of supposedly relevant information leads to disinformation.
Which effects on the real estate market are conceivable?
Not a few commentators of the residential real estate credit directive see the law as a well-camouflaged attempt by the legislator to tackle the price bubble on the German real estate market. After all, prices are no longer rising unrestrained only in the major conurbations, not least because of the monetary policy of the ECB.
The legislature’s bill could be: Fewer conditions in the review by the bank equal less loan volume equal to falling demand equal to the end of the price rise. However, the directive will have no impact on demand from institutional investors well possible that prices will rise further and private customers will only have to overcome greater hurdles.
What does the guideline have to do with BGH judgments on fees and the right of revocation?
At first glance, nothing. However, the banks’ experience with the two groundbreaking judgments (and from the industry’s point of view) could favor a restrictive stance in the lending business. The reason for this is found in the 505d BGB newly introduced by the law, which provides for a reduction in the lending rate in the event that a bank breaches its obligations in the credit assessment:
If the lender has violated the obligation to assess creditworthiness, a fixed interest rate agreed in the loan agreement is reduced to the market rate on the capital market for investments in mortgage Pfandbriefe and public Pfandbriefe, the duration of which the borrowing rate corresponds to.
The also newly added 505 b (2) regulates the obligations of banks in the credit check and waives concrete details:
In the case of real consumer loan agreements, the lender shall examine in detail the borrower’s creditworthiness on the basis of necessary, sufficient and adequate information on income, expenses and other financial and economic circumstances of the borrower. In doing so, the lender should take due account of the factors relevant to the assessment of whether the borrower is expected to meet its obligations under the loan agreement. The credit assessment shall not be based primarily on the assumption that the value of the land, building or landlord equivalent right is likely to increase or exceed the amount of the loan.
From the point of view of banks lurks here the next black box of arbitrator discretion, which had added to the industry also with right of revocation and processing fees in both cases exclusively for past contract conclusions and without tangible benefits for current and future borrowers.
Why are mortgage lenders now indispensable?
For private customers, intermediaries on the way to the best possible financing are now more important than ever before. Due to the new specifications, we believe that there will be a growing heterogeneity of the acceptance criteria. Even supposedly small details can have a major impact on the circle of consenting banks and the realistic conditions.
The banking industry has been interested in low-interest rates for quite some time, especially in the real estate loan business. The unclear situation could be a welcome opportunity for institutions to increase the structural profit premium in the sector. Heterogeneous acceptance criteria make comparability difficult for consumers and make it easier for banks to make such additions to customers who hire an intermediary.