German residential property prices are nearing 2022 record levels as a surge in lending coincides with rising borrowing costs driven by the war in Iran, according to data from Germany’s Pfandbriefbanken association.
In the final quarter of 2025, house and apartment prices rose 4.2 percent compared to the same period the previous year, the Verband deutscher Pfandbriefbanken (VDP) reported, based on actual transactions from over 700 banks. The upward trend that began in 2024 has continued, with prices now not far from the peak reached in summer 2022, when low interest rates fueled a buying boom.
In Germany’s seven largest cities — including Berlin, Hamburg and Munich — price growth was even stronger, reaching 4.7 percent for the year-end 2025 period. New rental contracts in these markets climbed 3.5 percent over the same timeframe.
VDP President Gero Bergmann warned that while demand remains strong, the war in Iran is amplifying market uncertainty and pushing inflation higher, which could prompt the European Central Bank to raise interest rates further. He noted that ten-year mortgage rates are again approaching four percent, a level that significantly increases financing costs for buyers taking out large loans.
For more on this story, see German Condominium Prices Rise as Buyers Pivot to Existing Properties.
Despite higher borrowing costs, lending activity surged in 2025. The volume of new residential mortgage loans rose 17.5 percent to 92.6 billion euros, with multi-family home lending increasing by about a quarter. Commercial real estate lending, which had slumped due to remote work trends, also showed a clear recovery.
The VDP projects that nationwide rents will continue to rise due to persistent housing shortages, and that property prices could increase by another 2.5 to 4.5 percent in 2026, potentially setting new records.
Bergmann cautioned that while optimism at the start of the year has been dampened by geopolitical tensions, there is no indication yet of a refinancing crisis in the sector.
Why are property prices rising despite higher borrowing costs?
The primary driver is a persistent shortage of housing, especially in major urban centers, which continues to support demand even as financing becomes more expensive. Banks also reported significantly higher lending volumes in 2025, indicating strong buyer appetite.
Could the European Central Bank’s response to inflation slow the housing market?
Yes, if the ECB raises interest rates further in response to inflation fueled by higher energy costs from the Iran war, borrowing costs for homebuyers could rise further, potentially dampening demand — though the VDP says a full-blown refinancing crisis is not currently expected.
