What is the countercyclical capital buffer?

Banks must deposit equity for all loans they grant.

When it is reactivated at the end of September 2022, they will again have to hold additional capital for residential mortgages in the amount of 2.5%.

The capital buffer increases the ability of banks to absorb credit losses.

It was activated for the first time in 2013 and increased to 2% in 2014.

In 2020, however, it was deactivated due to the pandemic.

What effect does the capital buffer have on the real estate market?

The countercyclical capital buffer does not have a direct effect on real estate prices. It makes the banking system a little more resilient and therefore safer.

But it has hardly any braking effect on the real estate market.

Prices are primarily driven by mortgage rates, which are still very low by historical standards, and investors’ search for yield. The low interest rates make residential properties attractive for existing tenants, and for institutional investors the performance is promising and there are hardly any better investment alternatives.

Will this also increase mortgage interest rates?

In 2014, it was noted that mortgage interest rates hardly increased due to the capital buffer of 2% thereafter (by 0.1 to 0.2%). Subsequently, however, the impact was not felt because interest rates fell.

If the bank has to back its mortgages with more equity, that will make the mortgage a little bit more expensive. But that will hardly be noticeable, as in 2014 to 2020.