Background

In August 2022, the FMA issued the “Kreditinstitute-Immobilienfinanzierungsmaßnahmen-Verordnung (”KIM-VO“) (Federal Law Gazette II No. 230/2022)”.

In summary, the aim of this regulation was to limit the systemic risks in residential real estate financing and to focus on the borrower's ability to repay rather than the mortgage collateralization of the loan and to implement the recommendations and requirements of the Financial Market Stability Board (“FMSG”). The KIM-VO regulates, among other things, the following upper limits for the granting of residential real estate financing:

•             A maximum loan-to-value ratio of 90%, whereby the banks were granted an exception quota of 20%;

•             A maximum debt service ratio of 40% (exception quota: 10%);

•             A maximum term of 35 years (exception: 5%).

Since coming into force on August 1, 2022, the KIM-VO and the upper limits for the granting of residential property financing have been the subject of controversial debate and their necessity has been questioned by numerous representatives of the real estate industry and politicians. The main point of criticism has always been that an overly strict restriction on residential real estate financing would noticeably reduce the demand for real estate and prospective buyers would have to live in tenancies instead of considering buying a property, which would lead to higher rents and the associated negative social and economic impact on people.

The KIM-VO has now expired on July 1, 2025. However, the restrictions on the granting of residential real estate financing remain in place in a different form.

FMA Residential Real Estate Lending Circular (WIK Circular)

Due to the fact that the FMSB last endorsed the KIM-VO guidelines on the granting of residential real estate loans by banks on 26.2.2025, the FMA issued a circular on the sound granting of private residential real estate loans on 26.6.2025 (“WIK Circular”).

In this circular, the FMA upholds the requirements of the KIM-VO as recommendations to the banks. In summary, these recommendations are that borrowers should continue to

•             Bring their own funds (specifically: maximum 90% loan-to-value ratio);

•             remain cautious with the amount of the loan installment (maximum 40% of annual net income); and

•             be debt-free before retirement if possible (maximum term 35 years).

The WIK Circular expressly does not constitute a regulation. It reflects legal opinions and the FMA's recommendations for conduct derived from them. Banks' rights and obligations that go beyond the statutory provisions cannot be derived from the circular. However, as a “recommendation for conduct” issued by the FMA, the WIK Circular nevertheless has a regulatory effect on banks, as the FMA regards the recommendations it contains as a guideline for sound lending. If banks wish to deviate from these guidelines, they must be able to demonstrate that this greater risk appetite is covered by their risk strategy, which may mean a higher capital requirement.

Conclusio

In summary, the WIK circular has now changed the situation for banks in that they can now deviate from the former provisions of the KIM-VO on the granting of residential real estate financing as long as sound lending (in accordance with Section 5 (1) KI-RMV) is still guaranteed. However, a deviation from the FMA's recommendations and the associated greater risk appetite could lead to higher capital requirements by the FMA.

It remains to be seen whether the expiry of the KIM-VO will have a positive effect on the granting of residential real estate financing and whether there will be a higher demand for real estate against the backdrop of the FMA's WIK circular.