Property financing revives as banks pick their borrowers carefully

Germany’s property lenders are finally moving again. New business among VdP member banks reached €107.3bn in the first three quarters of 2025, nearly 20% more than a year earlier and the strongest performance since autumn 2022. Q3 alone saw €37.2bn in new loans, suggesting genuine momentum after three years of retrenchment.

Residential financing led the rebound, with €67.7bn in loans issued, up 19%. Multi-family houses grew 29.5% to €16.7bn, and single- and two-family homes accounted for €33.4bn. Commercial lending rose to €39.6bn, with a particularly strong Q3 at €15.5bn, up 32.5% year-on-year.

“The real estate financing business of our member institutions is picking up noticeably despite continuing challenges,” said the VdP Verband deutscher Pfandbriefbanken's CEO Jens Tolckmitt at the recent Real Estate Finance Day in Frankfurt, attended by REFIRE. Buyers and investors have adjusted to the current interest-rate level and transaction activity has followed. Residential prices have risen for five consecutive quarters, while commercial values have stabilised for three quarters in the segments where banks remain active.

But Tolckmitt also warned against misreading the momentum. The lending surge is concentrating heavily on existing stock, not new construction. With building permits at historic lows, activity is funnelling into a housing market already short of supply. The upswing is real, but it does not resolve the structural imbalance.

Volumes up, deal sizes down

Beneath the headline numbers, the market tells a more cautious story. BF.direkt’s latest analysis shows almost half of lenders now report average quarterly loan volumes below €10m. Loans above €100m, once a regular feature before 2019, have almost vanished. Mid-sized deals in the €10m–€50m bracket have also thinned out over the past decade.

“It is not only real estate companies that avoid cluster risks in their transactions, but also real estate financiers,” said BF.direkt CEO Francesco Fedele. Banks are concentrating on established sponsors, realistic business plans and credible valuations. Loan-to-cost ratios of 65% to 70% remain financeable. The 80%+ levels common before the interest-rate reset are now the exception.

JLL’s Dominik Rüger describes the environment as “bifurcated but functioning”. Liquidity has improved noticeably since 2024, yet underwriting discipline has tightened. Strong sponsors with sound calculations can secure debt. Borrowers relying on pre-2022 pricing assumptions cannot. Valuations have softened faster than debt has amortised, and that gap is shaping lenders’ behaviour more than interest rates themselves.

Margins have risen 80 to 100 basis points since the crisis began, reflecting both higher perceived risk and increased regulatory capital requirements. Credit is returning, but it is returning on lenders’ terms.

The refinancing test ahead

The refinancing cycle now looms over the recovery. CBRE estimates around €50bn of loans originated between 2019 and 2022 are at risk of non-extension. Across Europe, more than €300bn will mature by the end of 2026. Many carry interest-rate assumptions and valuation levels that no longer apply.

“Follow-up financing is the sword of Damocles hanging over financiers,” says Fedele. Banks are engaging early, but their tolerance is short. Borrowers refinancing today face higher interest costs and often reduced loan amounts as lenders reassess collateral values.

Rita Marie Roland, partner at KPMG, notes that rates themselves are no longer the main barrier. “Property values have often still not been adjusted because many sellers do not have a realistic view of prices,” she says. The maturity wave will force sharper price discovery. “The maturity wall is real.”

The ECB’s decision to maintain the deposit rate at 2.0% gives lenders and borrowers a predictable backdrop. For Stefan Hoenen, Head of Commercial Real Estate at Hamburg Commercial Bank, the decision provides “a stable basis for calculation and greater planning security”. With markets adjusting to a permanently higher-rate environment, stability matters more than incremental cuts.

Foreign capital has also become more visible, accounting for around a third of transactions in the multi-family segment. Municipal housing associations have stepped up forward funding, now representing roughly 35% of new business — further evidence that capital is returning first to the segments where risk is perceived to be lowest.

The recovery has arrived, but it remains narrow. Lending volumes are rising, underwriting is disciplined and the worst of the downturn appears to be behind the market. The real test lies ahead. Whether the system can absorb the refinancing wave without forcing widespread deleveraging will determine how durable this revival proves in 2026. For now, the borrowers who accept the new maths are the ones securing finance.