No Reason to Worry About German Mortgages? An Analysis of Macroeconomic and Individual Drivers of Credit Risk

Nataliya Barasinska (), Philipp Haenle (), Anne Koban () and Alexander Schmidt ()
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Nataliya Barasinska: Deutsche Bundesbank
Philipp Haenle: Deutsche Bundesbank
Anne Koban: Deutsche Bundesbank
Alexander Schmidt: Deutsche Bundesbank

Journal of Financial Services Research, 2023, vol. 64, issue 3, No 3, 369-399

Abstract: Abstract This paper analyzes the macroeconomic and borrower-specific credit risk factors of residential real estate mortgages in Germany. Relying on a macroeconomic panel VAR model, we show a significant link between foreclosures, house price dynamics and unemployment. Using microeconomic regressions, we show that defaults are driven mostly by income and liquidity rather than loan-to-value (LTV) ratios. Based on those insights, we calibrate a structural model which predicts a significant increase in mortgage losses in a stress scenario, driven only partially by high-LTV loans. Hence, from a macroprudential perspective our findings support the need for a broad toolkit going beyond LTV-limits.

Keywords: Residential real estate; Mortgages; Credit risk; Stress testing; Germany (search for similar items in EconPapers)
JEL-codes: G01 G17 G21 G28 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10693-023-00409-3

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