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Online mortgage risk calculator for German market

... which tells us why German real estate market will likely crash

Daniel Duffy

C++ author, trainer
But if the rates grow, the market is going to crash!

In the nineties lending rates were 13% and there was no crash. In 2008 rates were low and there was a crash.

So, what's different now?

How can rates go up in the current climate? I live in The Netherlands and I don't see it happening here in the short term.
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In the nineties lending rates were 13% and there was no crash.

So, what's different now?
The house prices! ;)
Both {low prices; high rates} and {high prices; low rates} are ok.
But {high prices; high rates} will (sooner or later) lead to crash.

I live in The Netherlands and I don't see it happening here in the short term.

You should not compare the Netherlands and Germany.
I have recently been to the Haag (nice city). You have f.ckingly expensive restaraunts and I paid €5 for a tube of toothpaste in a (night) supermarket. But as to rents, they are MUCH lower (both on absolute basis and as relative expenditure share in family budget) than by us in Germany .

Additionally, people are afraid to build in the Netherlands because if sea level raises, their real estate will get sunk! ;)

Daniel Duffy

C++ author, trainer
LOL, we've got the best dykes in the world!

what about 2016-2030?
I think 1980 == year 0 for you :D

What happens to rates if the economy booms again? Instead of scaring me, what are your predictions?
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what about 2016-2030?
Will see. I expect Japanese scenario: stagnation and long-term near-zero interest rate.
Because IR is not an abstract random variable, finally, it is driven by economic growth, which slows down (and will be unless humans colonize other planets).

But downtrend in a long term does not mean that there will be no recoils in short-term.
Moreover, the chart above shows that there will likely be.
And even an increase by 2% will significantly hurt the German real estate market.

(By the way, according to the stress test, the banks should be able to bear a 2% overnight(!) jump - i.e. the regulators do not hold it for impossible. And what is possible overnight will likely happen within 10 years!)

Daniel Duffy

C++ author, trainer
My model is not about mortgage debt held by banks. My model is about how a shift of rates influences
a) the (residual) mortgagers' debt
b) the market prices of real estate

Are you using quant methods to model this? Are (historical) fundamentals important here?
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Are (historical) fundamentals important here?
They are, but such a model would be too complicated for a layman.
So I keep it simple or even simplystic.

1. We assume that a typical mortgager can pay a certain monthly installment (what remains from his salary after food-, car-, children- and other costs) and that he should completely amortize the mortgage before he retire.
2. Current house prices are so high that a typical mortgager have to pay virtually all life long until he redeems the debt completely.

Thus we assume that if the mortgage rate increase, the house prices will necessarily drop (from 1. and 2. it follows that neither installment, nor mortgage duration can be increased). Namely, they will drop exactly so that the new house price will be equal to the new present value of the mortgage. Of course it is just a model, but in our opinion it is not implausible.

Daniel Duffy

C++ author, trainer
How much can you lend in D: 3 1/2 times salary? And do you need a deposit of 20% on the house? Are mortgage mostly annuities?
How much can you lend in D: 3 1/2 times salary?
And do you need a deposit of 20% on the house?
loan != loan in Germany ;)
To be true I know little about credibility requirements for consumer credits (Verbraucherkredit) but as to mortgage (Baukredit, Immo-Darlehen), virtually anyone who can, in principle, redeem it till retirement, can get it.
Downpayment is not critical at all. However, banks insist that notary fees and 5% real estate purchase tax (Grunderwerbsteuer) should be financed by own savings. In other words, the mortgage notional shall not exceed the house market price.
BTW, ING DiBa is an important player on German retail credit market ;)

Are mortgage mostly annuities?
Yes, mostly, but not exclusively.
We have even such exotic like Endälliges Darlehen (note that there only German version in wiki). By this credit you don't amortize anything, you just pay the interest. I know one lucky devil, who took this credit due to his financial illeteracy 10 years ago and now profits from old (low) price and new(low) interest rate. Ok, he had to pay for it old (high) rate for 10 years, but still he made a good deal.