BERLIN—Germany’s banks are maintaining healthy standards on home loans, according to the country’s central bank, despite separate evidence of rising house prices and demand for loans. “The Bundesbank’s economists are now issuing the all-clear signal for lending policy,” it said in a report issued Wednesday. Banks have remained prudent in lending to home buyers even as volumes have increased. The comments address fears that Europe’s ultralow interest rates could spark a real-estate bubble in Germany’s buoyant economy. They also follow data the Bundesbank released Monday that showed urban residential property prices increasing 6% last year, slightly faster than in 2014. These prices are now 10% to 20% higher than justified by fundamental economic and demographic trends, the Bundesbank said, with condominiums in big cities most overvalued.
Loans for house purchases have also increased in recent years, and growth accelerated in recent months, according to the central bank. The annual growth rate was 3.5% in December, the highest inmore than 13 years, it said on Wednesday. Banks nevertheless continue to ensure debtors repay loans by enforcing minimum requirements for borrowers, the Bundesbank said, citing a survey. Some banks have even tightened requirements. “In the course of the recent rise in property prices, they therefore did not take any higher risks,” the Bundesbank said. The upward price trend is expected to continue. Among the factors likely to lift property prices further are the availability of cheap loans, a robust labor market, and the influx of immigrants seeking housing. “In future, the strong immigration of refugees will likely be reflected in demand for and supply of housing, but with overall moderate effects on price increases,” Bundesbank wrote in its monthly report Monday. In 2016 and 2017 combined, residential property prices and rents could rise by about 0.5 to 1 percentage points more than would be the case without refugee immigration, it said. “If a disproportionately large share of immigrants strive for metropolitan areas, where housing markets are already tense, rent and price pressure could become stronger there,” according to the central bank. Overall demand for apartments remains strong in Germany because of good income and employment prospects, the Bundesbank said, but also because property is increasingly affordable. Mortgage interest rates declined by more than half a percentage point in the course of 2015 to below 2%. Home construction is rising, but probably not enough to offset the effect that strong demand has on prices and rents, in the central bank’s view. Building permits rose by almost 7% last year to around 300,000, the Bundesbank estimated. In rural areas, price increases were less pronounced last year than in cities. In Germany as a whole, residential property prices rose 5.5% in 2015. Write to Friedrich Geiger at friedrich.geiger@wsj.com This article originally appeared on The Wall Street Journal.