Home Loan Crisis

To Save or to Build

VW Bulli Vintage
A Wüstenrot advertisement from the year 1954 reading "Germany's biggest building loan society."
  • Why it matters

    Why it matters

    Record low interest rates in Europe have made life tough for banks stuck with high-interest deposit accounts. But consumers are fighting back against efforts to change the system.

  • Facts


    • Consumers enter into so-called building loan contracts with home loan banks, agreeing to save a specific sum over a fixed period of time and getting interest paid on their deposits.
    • German savers have concluded close to 30 million building loan contracts, with a total volume of €860 billion.
    • Home loan banks have terminated more than 200,000 building loan contracts, arguing consumers exceeded the maturity dates stipulated to take out a loan. The Federal Supreme Court is eventually expected to rule on the issue.
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Jürgen Schmidt was shocked when he opened a letter from his home loan bank, Wüstenrot, in January 2015. The letter stated that the bank was terminating his building loan contract with immediate effect, because the contract had been mature for more than 10 years.

For Mr. Schmidt, whose contract began in 1988, the termination came as a complete surprise. “It was only in 2013 that I inquired with Wüstenrot as to whether I could continue to save, and they said yes,” says the 46-year-old, calling the bank’s decision to terminate his contract an “outrage.”

Mr. Schmidt, who lives in the western German state of Hesse, quickly decided that the bank’s action was unacceptable. He is now suing Wüstenrot.

He is not alone. German home loan banks have already terminated more than 200,000 building loan contracts across the country – and the number of inquiries is only likely to increase.

It’s all part of a new hard-ball effort by cash-strapped home loan banks in Germany, one of the country’s biggest financial segments. German savers have concluded close to 30 million building loan contracts, with a total volume of €860 billion.

Many of these home loan banks are facing an existential crisis, unable to pay high interest on the home-loan deposits.

The conflict is the result of ultra-low interest rates across Europe, put in place by the European Central Bank to keep the euro-zone’s economy afloat and encourage consumers and businesses to take out loans.

But what if consumers choose to save their money instead of take out a loan?

Under Germany’s home-loan system, consumers agree to save a specific amount over a set period of time – often 10 years – after which they agree to take out a loan from the bank and use the saved-up money as a down payment. In the meantime, they’re paid interest on the deposits they make into the home-loan account each month.

The trouble comes when consumers don’t take out the loan as promised. That leaves home loan banks paying high interest rates on deposits for contracts that were set up 10 years ago or more – often as much as 4 per cent a year.

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