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

Author

Listed:
  • Nataliya Barasinska

    (Deutsche Bundesbank)

  • Philipp Haenle

    (Deutsche Bundesbank)

  • Anne Koban

    (Deutsche Bundesbank)

  • Alexander Schmidt

    (Deutsche Bundesbank
    European Central Bank)

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.

Suggested Citation

  • Nataliya Barasinska & Philipp Haenle & Anne Koban & Alexander Schmidt, 2023. "No Reason to Worry About German Mortgages? An Analysis of Macroeconomic and Individual Drivers of Credit Risk," Journal of Financial Services Research, Springer;Western Finance Association, vol. 64(3), pages 369-399, December.
    • Handle: RePEc:kap:jfsres:v:64:y:2023:i:3:d:10.1007_s10693-023-00409-3
    DOI: 10.1007/s10693-023-00409-3
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    References listed on IDEAS

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    More about this item

    Keywords

    Residential real estate; Mortgages; Credit risk; Stress testing; Germany;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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