Can we really afford this, and will the bank support it?

Only in the head. After all, 1.6 million is only opposed by 860k in debt. As a balance, that is much better than a 400k property with 350k debt. Even better would be 5 million in debt and 15 million in real estate. It's all relative. Objectively, no courage is needed for that. Anyone can "objectively" sleep peacefully. What is supposed to happen? Both become unemployed and have to sell the house? So what? With the surplus, one can live many years without a job. The one with the 400k property and 350k debt falls directly into a very deep social welfare hole if he loses his job. Even if he previously thought he could sleep well with a small loan.

The former definitely has to move out, maybe to another place. He loses what he has built up, his garden (into which some people put a lot of their heart and soul), his hobby opportunities, proximity to children and/or grandchildren… The latter first receives unemployment benefits, from which he can pay the installment. And then quite certainly gets a new job, from which he can pay the installment. It is unlikely that both lose their jobs at the same time. But the second can cover the installment if necessary with one income, the first cannot. So whether someone can sleep calmly with debts of this magnitude depends more on the attitude. If the house is just an object like a car, then you are certainly right. If it is the nest where one wants to grow old, one sees it differently.

It was about the risk of the large sums. The former can lose both jobs, buy a flat and then live comfortably off the assets for 15 years. Risk = 0 (emotionally depending on the person maybe "terrible"). So no, it does not depend on attitude. Factually, the risk is very low. One can sleep well because one "only" has to fear a property change. The latter very often ends up in foreclosure. High risk. That is objectively so. But it would not keep me from sleeping badly either, because the whole life is a risk. If I take 0 risk, I can forget my life right away.

What is supposed to happen? Both become unemployed and have to sell the house? So what? You can live many years without a job with the surplus.

The former can lose both jobs, buy an apartment and then comfortably live off the assets for 15 years.

Yes. But when selling, you are left with 3/4 of a million that you can live on. In the second example, you have to be able to pay the rate for the house from unemployment benefits and later citizen’s allowance (e.g. 350k for 1,500€ per month) or sell it and basically have no assets to live off.

First, it’s an extreme example that both lose their jobs and don’t find new ones (with that income, a certain qualification is already present).
Second, it’s a real loan, with the bank being relaxed.
Third, selling is not a risk. As written above, you get 3/4 of a million cash in your pocket. I’m annoyed to sell the house, but I live more relaxed than in the other example. For example, I buy a small apartment, pay cash and still have 400,000€ left for my living expenses over the next 15 years.
You’re not used to such numbers, right?