The German Government has prepared a draft new law which is intended to prevent a bubble in the German real estate market as a possible result of overvaluation, decreasing lending standards and excessive mortgage lending. The draft financial regulation amendment law (Gesetz zur Ergänzung des Finanzdienstleistungsaufsichtsrechts im Bereich der Darlehensvergabe zum Bau oder zum Erwerb von Wohnimmobilien zur Stärkung der Finanzstabilität – Aufsichtsrechtergänzungsgesetz – FinErg Wohn) shall implement the recommendations formulated by the German Financial Stability Committee. It strengthens the powers of the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin). A new section 48u shall be inserted into the German Banking Act (Kreditwesengesetz – KWG). The provision entitles BaFin to restrict the extension of mortgage lending for residential real estate financing if the supervisor sees a threat to Germany’s financial stability. If approved, the proposed law would give BaFin the competence to limit lending volumes by linking the loan amount to the market value of the financed real estate (loan to value). Moreover, BaFin shall be entitled to tighten loan repayment rules (amortization requirements) and cap debtors’ mortgage payments in relation to their income (debt service to income) and promulgates for non-natural persons minimum debt coverage requirements (debt service coverage ratio). The draft law also entitles BaFin also to define a limit for total debts of a borrower (total debt to income). The draft law stipulates also a de minimis threshold for small loans and various exemptions from the restrictive rules, e.g. for follow-up financing and refurbishment financing. The lending restrictions shall be revised annually.