Composite: REFIRE/KonstantinKolosov on Envato
The number of property foreclosures in Germany is rising significantly, driven by current economic instability and higher interest rates. In the first half of 2024, foreclosures increased by 8% compared to the same period last year, totalling more than 6,900 auctions with a market value of nearly €2.2 billion, according to specialist publisher Argetra Verlag.
This surge marks a sharp departure from recent trends, with the latest increase around four times higher than the overall increase seen in 2023. Last year, the number of foreclosures rose by 2% to 12,332 properties, indicating a growing financial strain on property owners.
Experts attribute this rise primarily to the European Central Bank’s (ECB) aggressive interest rate hikes and Germany's sluggish economic growth. Since mid-2022, the ECB has raised its key interest rate from zero to over four per cent, causing building interest rates to more than quadruple in some cases. This dramatic increase has left many borrowers struggling to meet higher monthly payments when their loans come up for renewal.
Nicole Merta, a legal advisor at owners' association Haus & Grund Hessen, highlighted the difficulties faced by borrowers: "If follow-up financing is due, especially for owners who took out their property loan when interest rates were low, they will no longer be able to finance the new high instalments." For instance, a borrower with a €300,000 loan initially paying €875 monthly at 1.5% interest now faces €1,375 at 3.5 % – an increase of €500 per month.
Foreclosure data reveals significant regional disparities. Thuringia has nearly three times as many foreclosures as Bavaria. The highest numbers of foreclosure dates are recorded in Berlin, Leipzig, and Zwickau, while regions like Düsseldorf and Gelsenkirchen have seen a relative decline in their numbers.
Regarding property types, detached and semi-detached houses constitute around half of the foreclosures. Condominiums account for 20%, with apartment blocks and commercial properties making up 15%. Vacant properties, garages, and other types of properties round out the remaining 14%.
Argetra’s analysis points to the broader economic challenges driving this trend. Rising interest rates, high inflation, and a slowdown in economic growth are straining borrowers, particularly those in the middle-income bracket. Walter Ruesch, managing director of Argetra, noted, "There will be little room for negotiation with banks that have financed property to the limit in recent years. The inevitable consequence will be that the number of foreclosures will increase."
Despite these challenges, there are some signs of market stabilisation. Property values appear to be rising again, with the total market value of auctioned properties in the first half of 2024 increasing by 10.7% to €2.17 billion, outpacing the growth in the number of properties auctioned. This suggests that while foreclosures are rising, the properties being auctioned are retaining or increasing their market value.
Looking ahead, the outlook remains uncertain. Argetra predicts that if the current trend continues, the total number of foreclosures in 2024 could reach 14,000, a significant increase from the 12,332 seen in 2023. While the ECB's recent interest rate cuts have provided some relief, borrowing costs remain high compared to the pre-Ukraine war period, and many homeowners continue to face financial pressure.
In summary, the rise in German property foreclosures reflects the broader economic difficulties affecting homeowners. Higher interest rates and economic stagnation are the main drivers, with significant regional variations and different property types experiencing varying levels of distress.
