Government Drafts Legislation to Prevent Real Estate Bubble
The German government aims to tighten lending standards in the housing market to prevent a bubble, according to draft legislation obtained by Handelsblatt.
The legislation would give Germany’s financial regulator, BaFin, the authority to set minimum standards for lenders “when this is necessary to ward off a danger to financial stability.”
BaFin would have the power to set credit limits for financing new homes and could require lenders to investigate how much debt a borrower can sustain relative to their income.
The German cabinet will officially sign off on the draft legislation on Wednesday, according to Handesblatt’s sources.
There has been widespread opposition to the proposed legislation in parliament even among the ranks of coalition government’s own parties – the center-right Christian Democrats, the center-left Social Democrats and the hard-right Christian Social Union.
Critics are concerned that the legislation would effectively choke off Germany’s credit markets.