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January 2018

Mortgage market: The insurance is for the Bank for Housing Loans

For construction loans with 15 and 20-year maturity does not require a bank the lowest interest rates – but the alliance. What is behind this oddity?

Since the summer the construction interest dropped somewhat, the relevant comparison portals Report on the Internet. What is striking here: currently is headed by the comparison tables for construction loans with 15 or 20 years fixed interest no bank – but an insurance policy that alliance. It calls for an APR of 1.87 percent for a twenty-year loan. According to the insurance, these are, however, so-called basic conditions, which are available for loan amounts 150,000 to 400,000 euros, a lending of 60 percent and for employees.

The average borrowing rate in the market for such loans currently stands at 2.25 percent, only about half as high as four and a half years, as the Internet portal Biallo has calculated. Immediately behind the Alliance follow in these rankings again, no banks, but even more insurance, namely the European insurance, the insurance group Ergo, the DEVK, Bayern insurance and life insurance of the 1871st

It is obvious: The insurance companies strive especially hard to attract customers with low-interest rates for construction loans. Although they are primarily active in a part of that market; so they often do not lend on houses as high as some banks, they also offer their favorable interest rates, especially for long-term construction loans to. With very long-term construction loans, some with a duration of 40 years, they have already long occupied a niche. For loans with a fixed interest rate ten years, which have so far been completed yet most often, however, they are less active.

The forward loans Comparison

However, there are many homebuilders, given the low-interest rates already tend to agree longer maturities, as Horst Biallo says the same portal. Here the interests of borrowers and insurance companies would receive. “The impact of these additional competitors, of course, on the price of building capital,” says Dirk Schiereck, banking professor in Darmstadt. “The extra supply provides additional margin pressure in an already eroding market environment.”

Even insurance companies make up a tiny share of the market

Overall, however, the commitment of the insurance on mortgage market accounts for a small proportion of – Conversely, the share of mortgage loans in the total investment portfolio of insurance is still manageable. However, the deal seems pretty good to develop: The Alliance reported in 2015 it had already completed significantly more contracts for mortgage loans than in the entire previous year.

there were more than 9000 contracts until the end of October, the whole of fiscal 2014 only 8400. We have now a loan portfolio amounting to approximately 15.3 billion euros, which makes about 7 percent of total investments of the life insurance business alliance feelings. New business in mortgage lending amounted around 2.2 billion euros in the year, 2014.

Also, Interhyp, Germany’s largest broker of private mortgage loans, reported increased arranging loans with a 20-year maturity that come from the hands of insurance companies. In this category, the share of insurance on all loans brokered in the past six months has increased to 20 to 30 percent.

Beneficial long-term liabilities

The background to this development is the low-interest rates: For the insurance companies, it is not so easy, yet sure to invest the money of their insured with a reasonably acceptable return. For this reason, the diversification of risks, some insurance companies put parts of their funds, for example, in the financing of infrastructure, but also in private housing loans, and obviously with increasing tendency.

“The advantage of life insurance companies that have long-term liabilities than banks,” says the Frankfurt finance professor Andreas Hackethal. Because of the refinancing of insurance, as if their deposits side, via long-term contracts such as life insurance, fit also long-term investments such as mortgages over 20, 30 or 40 years from the time limits ago problematic to their business than to that of banks.

The latter are financed among other short-term deposits such as current accounts, savings or money market. The procure the insurance for the necessary protection of the so-called maturity mismatch, so the different maturities of assets and liabilities, a cost advantage, says Hackethal.

Save even in terms of six years

Particularly striking is the development in Switzerland to put in the negative interest rates, the insurance companies and pension funds in investments under particular pressure. The mortgage and prevention network “Money Park” has there compared in a study, the construction loan terms from insurance companies and banks in 1000 concrete offers. Even with maturities of six years to the insurance companies were much cheaper.

Nevertheless, they made, according to the Supervisory Authority FINMA only 4 percent of the total market. The background is that mortgage for banks represented an interest margin, that is a part of the core business, which will advertise accordingly. it was a pure additional business for the insurance companies, they were looking for a high-yield and especially long-term investment solution for their premium money.