WIKR – this abbreviation is currently wandering through the comment columns in the business sections of the German press landscape. WIKR stands for "residential real estate directive". It was posted on 21.03.Enacted in Germany in 2016 as a result of an EU regulation. It aims to protect construction financing customers from incorrect or inadequate advice. Already after the financial crisis, lawmakers had made it mandatory for banks and financial advisors to make advisory records of every customer conversation. These must be presented to and signed by the customer. This is to ensure that customers are not "ripped off" with financial products that are incomprehensible and overly advantageous. The WIKR is in itself nothing more than the extension of this advisory documentation requirement to the construction financing sector.
WIKR – a good idea for the benefit of the consumer
For the vast majority of borrowers, a construction loan is the most far-reaching financial decision they make in their lives. A construction financing can easily last 30 years and is thus a "vital" decision for the borrower. So that the excesses, which led to the real estate crisis in the USA in addition, in Spain, are stemmed, the WIKR requires the adherence to the following criteria:
- The bank or the advisor must provide the customer with information that makes him aware of the scope and risk before the contract is concluded. Deviations of the consulting recommendation in relation to the expressed customer's desires must be taken down, indicated and fixed.
- The customer must be comprehensively informed about the risks of a construction loan. It is mandatory that information on interest rate changes, income reduction and loss of value risks is provided and documented in the same way as z. B. Clarification of other risks such as z. B. Rent default risk (if the property is z. B. (partial) financing through subletting or re-letting.
- Each offer must be accompanied by a detailed advisory protocol, which must be countersigned by the prospective borrower before the contract is concluded.
- All advisors (banks, intermediaries or independent consultants) must also have a license according to paragraph 34i. These are binding guidelines for real estate loan providers and brokers, which you can read here.
- In addition, every prospective borrower must be provided with an ESIS (read here), which must be prepared in a standardized and legally compliant form.
WIKR – more and better informed customers and fewer credit providers
The aim of the WIKR is to provide better-informed customers who are able to assess in particular the risks always inherent in long-term construction financing – thus for their own life situation and financial planning. However, the WIKR Directive also leads to a reduction of the provider market. Not only because of the compellingly necessary permission after paragraph 34i for building financing switching. The liability problem is causing banks to act more cautiously when granting loans.
Banks must now question whether to approve a construction loan. The Mortgage Credit Directive will increase the liability of banks if not all risks have been assessed during the consultation and sale process. In practice, this means that today it is more difficult for the interested party to obtain a construction loan.
The bank examines as a rule now whether the building loan prospective customer after ten years is able to pay annually eight per cent with the follow-up financing on the loan sum is able. In addition, many banks today set the limit that is financed up to a maximum of 6.5 times an annual net salary. Of course, the amount of equity is also important.
For the customer who wants a short-term construction loan at particularly low interest rates z. B. has concluded over 10 years, it should also be borne in mind that in 10 years the construction interest rates may be back at 4 percent, but his financial situation has deteriorated (because z. B. the wife has given up her job in favor of raising the children)? Under these circumstances it can happen that he then no longer receives follow-up financing. Therefore, the conclusion of a long-term financing (30 years) or a full amortization loan is very reasonable from today's point of view.
WIKR – it becomes more difficult for young families and older prospective borrowers
There are good reasons for banks' caution in granting construction loans: In the final analysis, the WIKR has not yet resulted in any legal certainty. So far, it has not been clearly defined when and in which cases lenders are held liable. We are not talking about obvious consulting errors but rather gray areas and speculative possibilities: A prospective borrower and normal earner who is now in his or her late 40s will currently have trouble obtaining a loan if he or she is unable to pay off the loan in full by retirement age. Because of the current pension development, the bank cannot foresee with certainty what pension level can be expected. But also young families who lack security and equity capital are not infrequently excluded from the granting of loans. Banks appear to be more risk-averse due to previously unassessed risks (such as e. B. divorce, increase in children, employment contract status) the risk of loan default greater.
WIKR – now construction financing professionals are in demand
Initial experience with the Residential Mortgage Directive in the first few months since its introduction shows that banks – and especially their bank advisors – are very conservative about it; at the first sign of doubt, they increasingly decide not to grant the loan. Since the liability situation has not yet been answered in the last instance, in case of doubt one does not want to run the risk of being held liable as a bank. In addition, the often lack of sound experience of bank advisors in the construction financing business plays a role here. So if you are not in the appropriate age range, have little collateral, little equity, and do not have an above-average income over a long period of time, you definitely have a harder time getting real estate financing.
More leeway, even if limited by the WIKR, is available to bank-independent construction financing intermediaries such as ACCEDO AG, who are also not bound by bank-internal guidelines. Since they have access to the offers of several hundred German branch banks, it is easier for them to find a suitable loan or credit. a tailor-made construction financing concept consisting of several building blocks (z. B. a combination of bank loan, building savings contract, Riester subsidy, unscheduled repayments, etc.), especially since they have expert knowledge and in-depth knowledge of the complex construction financing business.
That is why we recommend that you not only talk to your bank or financial advisor – you should also take advantage of the expertise of online brokers who are independent of banks and who work free of charge to provide you with.