85 square meters, four rooms, terrace, first occupancy in the Liefering district of Salzburg. Cost: 800,000 euros. The “oasis on the outskirts of town” is still waiting for new owners. The young couple who were interested in it failed to find financing. Despite good incomes. The two in their mid-thirties are not an isolated case.
Exactly two years ago, the so-called KIM regulation (credit institute real estate financing measures regulation) came into force. Since then, the real estate market has suffered a major setback. Stricter lending rules, combined with significantly higher interest rates, meant that many people who wanted to buy had to give up their dream of owning their own home, at least for the time being. Anyone who doesn’t want to accept this is daring to look across the border. In Germany, lending is handled more flexibly in some respects. But who is this type of cross-border financial traffic suitable for? What should you look out for? And where are the pitfalls?
The analysis of the real estate market by the broker network Remax speaks volumes: According to it, real estate sales across Austria fell by over 25 percent in 2023. The recorded sales value even fell by almost 29 percent.
“People can still afford real estate up to 400,000 euros, but anything more than that is no longer possible. Owning property is no longer possible for many people, even those in the middle class,” says Salzburg real estate agent Michael Denkstein. Like many of his colleagues in the industry, he considers the KIM regulation to be excessive. It states that when granting real estate loans, the equity ratio must be at least 20 percent, the loan rate may not exceed 40 percent of household income, and the term may not exceed 35 years.
For many people, even those in the middle class, it is no longer possible to acquire property.
Denkstein Real Estate
Affected small and medium-sized businesses
Eva Bamberger from the Salzburg real estate agency of the same name says that because of these regulations, around ten percent of her customers are turning to Germany to obtain financing there. “This mainly affects loans between 600,000 and one million euros. In other words, the classic middle class, which is currently being made so difficult.” Denkstein estimates that around a quarter of his clientele are even obtaining financing in the neighboring country. “And if this option were better known, there would be even more,” the broker is convinced.
The introduction of the KIM regulation by the Financial Market Authority was not a joke, but rather a way to protect households from excessive indebtedness. Real estate prices in Austria have risen by 120 percent since 2010, but incomes have only risen by 50 percent.
There are no reliable figures on how many borrowers actually obtain their property financing abroad. However, this is not an unattractive option, particularly in the border regions in western Austria. “We have had this concern since the KIM regulation was introduced and have also noticed isolated cases of migration,” says Anja Kramer from Salzburger Sparkasse. Although there is no evidence of an increase, “we obviously do not know how many potential new customers never come to us and immediately head to Bavaria,” says the head of the credit risk management and legal department. With existing customers, however, this is rarely an issue. “They are usually loyal to us and we often find a suitable solution,” says Melzer. Nevertheless, the decline is dramatic: “Overall, our property loans have fallen by around half since the KIM regulation was introduced, although rising interest rates are of course also leading to customers buying fewer properties,” says the banker.
Advantages and pitfalls
When it comes to the number of their Austrian customers, the German competition is tight-lipped. “As a local savings bank, we concentrate primarily on our business area and provide our financial services there,” says the spokeswoman for Sparkasse Berchtesgadener Land. She adds: “Of course, we also handle inquiries from potential customers from Austria.”
Meanwhile, Munich Mortgage Bank is not seeing any increased demand from Austrian customers. Instead, the company’s website advertises “financing for private individuals residing in Austria” quite aggressively. Properties that are eligible for this are “located in Austria and are primarily used for residential purposes. We offer financing with fixed interest rates of up to 40 years or a variable interest rate based on the 3-month EURIBOR,” it says.
Credit brokers are well acquainted with the topic and advise customers about financing options at German banks if financing at an Austrian institution is not possible. “This can affect, for example, young families who, despite having a solid income and sufficient equity, do not meet the criteria of the KIM regulation and thus financing is only possible in exceptional cases, which is unfortunately only offered to a limited extent by credit institutions,” says Christoph Kirchmair, managing director of the credit brokerage platform Infina. German banks have a little more leeway and flexibility in individual loan cases by law. For example, loan terms of over 35 years are possible. The so-called debt service ratio can be over 40 percent of income. Some German banks even grant loans with an equity ratio of just ten percent. And the conditions are sometimes a touch better, especially with fixed interest rates: While the average interest rate for new housing loans in Austria is currently 4.04 percent according to the ECB, in Germany it is 3.95 percent.
Christoph Kirchmair, Infina
“Of course, there are also clear lending guidelines and standard market criteria for credit assessment in Germany”
Another advantage: In contrast to foreign financing from some other neighboring countries, there is neither a language barrier nor a currency risk. And in terms of collateral, it makes no difference whether a property is secured with a loan from an Austrian or a German bank. “Of course, there are clear lending guidelines and standard market criteria for credit assessments in Germany,” says Infina founder Kirchmair. It is important, however, that German housing loans are processed in accordance with Austrian consumer law. “We always pay attention to this, because German case law differs from Austrian law in some respects,” says the loan broker. “Customers who are considering taking out housing financing from a bank near the border should be aware of these differences in order to avoid unpleasant surprises later,” says Kirchmair. In Austria, for example, debt restructuring is common practice. Anyone who wants to exit their fixed-interest contract early because they have found a cheaper offer can do so by paying a penalty of one percent of the remaining debt. In Germany, however, the calculation of the so-called early repayment penalty is based on several parameters and amounts to up to ten percent of the remaining debt. “This could well result in costs of several tens of thousands of euros,” says Kirchmair.
Relaxed guidelines
Recently, it has been made a little easier for domestic banks to grant loans to people who do not fully meet all of the strict requirements. So-called exception quotas give financial institutions more leeway when granting loans.
Of course, even if real estate companies and domestic banks regularly protest against the KIM regulation, it is intended to protect borrowers from spiralling into debt and banks from defaults. The subprime crisis in the USA in 2007 showed what excessively liberal lending can lead to, and which subsequently escalated into a global financial and economic crisis.
