Mortgage Bank

A mortgage bank is a financial institution specializing in the granting of real estate loans secured by mortgages, which raises funds on the capital market through the issuance of mortgage bonds for refinancing purposes. Mortgage banks are among the oldest institutions in the German banking landscape and were regulated until 2005 by the Mortgage Bank Act, which was replaced by the Pfandbrief Act (PfandBG). Today, most former mortgage banks operate as Pfandbrief banks.

Refinancing via Pfandbriefe

The defining characteristic of a mortgage bank is the issuance of Pfandbriefe: mortgage claims secured by real estate are bundled into a cover pool and issued to investors as Pfandbriefe. These must be secured in accordance with strict loan-to-value limits (maximum 60% of the mortgage lending value). This system is considered particularly secure, as the cover pool is managed separately in the event of the bank’s insolvency. For real estate buyers, the bank’s refinancing structure is only indirectly relevant-it influences the terms and stability of lending.

The Pfandbrief is one of the oldest and safest securities segments in Germany. Even during the financial crises of recent decades, no Pfandbrief has ever defaulted. This is due to the strict legal requirements for the cover pool and the oversight provided by trustees and BaFin. For institutional investors-insurance companies, pension funds, and savings banks-Pfandbriefe are therefore a preferred investment instrument.

Significance for Homebuyers and Investors

Mortgage banks and Pfandbrief banks are key financing partners for major real estate transactions, commercial real estate loans, and residential construction financing. In the private sector, they often operate behind the scenes today, granting loans through brokers or banking groups. Well-known Pfandbrief banks in Germany include Deutsche Pfandbriefbank (pbb), DZ HYP, and Münchener Hypothekenbank. For private buyers, the bank’s financing expertise is more important than its name.

Mortgage banks play a particularly significant role in financing multi-family homes and commercial real estate in the Nuremberg metropolitan region: They often offer higher loan-to-value ratios, longer fixed-rate periods, and specific expertise in more complex financing structures than universal banks.

Loan-to-Value Ratio and Loan-to-Value Limit

Mortgage banks determine a loan-to-value ratio for each financed property-a conservatively estimated, long-term stable value that may be lower than the current market value. The legally prescribed loan-to-value limit of 60% of the mortgage lending value determines what portion of the loan may be included in the cover pool. Any financing portion exceeding this limit is secured through other instruments.

The mortgage lending value is often 10-20% below the agreed-upon purchase price. This means: If you buy a property for 500,000 euros, the portion of the cover pool is calculated only on the basis of a loan-to-value of, for example, 420,000 euros-60% of that would be 252,000 euros as the portion covered by the mortgage bond. The bank must cover the remainder through other refinancing sources or price it in as an increased risk.

Practical Tip for Property Owners in Nuremberg and Franconia

In the Nuremberg metropolitan region, private buyers typically finance their properties through savings banks, cooperative banks, or direct banks, which in turn often collaborate with mortgage banks. For larger investments-such as a multi-family home or commercial property-direct collaboration with a Pfandbrief bank may be advisable. We have a network of financing experts in the region and can assist our clients in finding the right financing solution.

When financing existing properties with higher maintenance needs, the loan-to-value ratio determined by the mortgage bank may be significantly lower than the purchase price-this requires a higher down payment. We prepare our clients for this and recommend obtaining multiple financing offers early on.

Frequently Asked Questions

What is the difference between a mortgage bank and a savings bank?

Savings banks are universal banks offering a wide range of services; mortgage banks or Pfandbrief banks specialize in real estate financing and refinance themselves through Pfandbriefe. However, savings banks can also grant mortgage loans and often collaborate with specialized refinancing partners in doing so.

Is my mortgage loan safer if I finance it through a mortgage bank?

The Pfandbrief model is considered one of the safest refinancing structures in the German banking system. For the borrower, however, the creditworthiness and stability of the lending bank are the most important factors. In the event of a Pfandbrief bank’s insolvency, the mortgage loan remains in effect and is continued by the insolvency administrator or another bank.

How does the loan-to-value ratio differ from the purchase price?

The purchase price is the current market value agreed upon by the buyer and seller. The loan-to-value ratio is a conservatively calculated, long-term stable value determined by the bank and is often 10-20% below the purchase price. It serves as a safety cushion for the bank.

As a private individual, can I work directly with a mortgage bank?

In principle, yes, but many Pfandbrief banks primarily target institutional clients and real estate companies. For private individuals, it is often easier to go through an independent financial broker, as they have access to multiple banks and their products.

Interest Rate Trends and Their Significance for Pfandbrief Banks

The fixed-rate structure of Pfandbrief banks makes them particularly sensitive to changes in the capital market. If capital market interest rates rise, new Pfandbriefe must be issued at higher rates-which increases the bank’s refinancing costs and is reflected in the loan terms for borrowers. In times of stable or falling interest rates, Pfandbrief banks can offer particularly favorable long-term loans, as their refinancing is secured through fixed-rate Pfandbriefe. For homebuyers, this means: The timing of financing and the choice of fixed-rate term have a significant impact on long-term financing costs, regardless of whether the loan comes from a Pfandbrief bank or a universal bank.

In the Nuremberg metropolitan region, financing conditions have changed significantly between 2022 and 2024: The ECB’s increase in key interest rates has caused mortgage rates to rise from below 1% to, at times, over 4%. Since mid-2024, interest rates have fallen slightly again but remain well above the levels seen during the low-interest-rate phase. Anyone seeking financing in Nuremberg today should compare multiple offers and also consider the terms from Pfandbrief banks, which are accessible through brokers.

What advantage does a loan from a Pfandbrief bank offer over a direct bank?

Pfandbrief banks often offer more favorable terms for long-term fixed-rate periods (10-20 years), as they can refinance themselves long-term via the Pfandbrief market. Direct banks often offer favorable short-term rates but are less competitive for very long fixed-rate periods. In addition, for complex financing structures-such as mixed-use commercial and residential properties or historic buildings-mortgage banks often offer customized solutions that direct banks do not include in their standard product range.

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