This publication introduces the latest short-term developments in mortgage and housing markets across the EU. The EMF Quarterly Review presents tables, charts and comments on the following indicators:
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The first quarter of 2018 continues the trend of growth in the EU’s overall mortgage and housing markets, aided by mortgage interest rates remaining close to their all-time floors. Annual house price inflation remains positive across the EU with all countries reporting increasing prices, typically greater than 5% as consumer confidence remains strong, supported by positive economic fundamentals.
At the end of 2017, the economic momentum in the European Union (EU) continued with positive GDP growth, falling unemployment rates and expanding private consumption.
In an environment of improving economic fundamentals, coupled with generally very low interest rates, the overall mortgage market in the EU is expanding, notwithstanding the overall challenging geopolitical international and domestic tensions. Almost across the board house prices are stable/increasing year-on-year (y-o-y) and, in some jurisdictions, they are increasing by double-digits, while in others there are clear signs of a shift towards a deceleration in house prices.
In this generally positive market outlook, a growing number of countries are considering the introduction of or have already introduced macroprudential recom-mendations to cool-off the more heated market segments, either by introducing more stringent LTV caps or by imposing amortisation schemes for certain types of mortgage contracts. The widespread imbalance between demand and supply, especially in the high-growth areas of the continent, is likely to persist over the coming quarters, although construction figures are picking up. Of course, national heterogeneities are still present and these must be analysed in more depth.
In Q2 2017 the economic momentum in the European Union continued with positive GDP growth, falling unemployment rates and expanding private consumption. In an environment of improving economic fundamentals, coupled with generally very low interest rates, the overall mortgage market in the EU is expanding. Almost across the board house prices are stable/increasing yearon-year (y-o-y) and, in some jurisdictions, they are increasing by double-digits.
In this generally positive market outlook a growing number of countries are considering the introduction of or have already introduced macroprudential recommendations to cool-off the more heated market segments. The widespread imbalance between demand and supply, especially in the high-growth areas of the continent, is likely to persist over the coming quarters, although construction figures are picking up. Of course, national heterogeneities are still present and these have to be analysed more in depth.
The first quarter of 2017 continued on the same path seen in 2016, namely increasing mortgage markets coupled with a general increase in house prices over the year and with persistent low, though in some jurisdictions and for some products, timidly increasing interest rates. These dynamics are underpinned by a widespread improvement of the economic performance of the EU whose GDP in Q1 2017 increased by 2.4% with respect to Q1 2016, coupled with an ongoing diminishing unemployment rate and a general increase in consumer confidence.
After the British decision to leave the EU, the election of Mr Trump as the 45th President of the United States was a further element of an unpredictable 2016. Nevertheless, the housing and mortgage market in the (for the time being) EU28 shows a remarkable resilience, fostered by an ongoing expansive monetary policy, together with a macro-economic upswing and a general widespread improvement of the economic conditions. In 2016, for the first time since 2007, all EU Member States depicted a positive GDP growth. Moreover, notwithstanding the growth of the construction industry in several countries, the well-known excessive demand for housing, especially in the most thriving regions of the European continent, pushed up house prices.
In light of mounting political uncertainty both within and outside Europe, the third quarter of 2016 has provided an aggregate housing and mortgage market picture which is in line with the previous quarters. In the EU house prices continued their upwards trend, on an aggregate level, while the outstanding mortgage lending figure in our sample, after having reached the peak at the end of 2015, slightly contracted by 1.9% since then. Interest rates continued their downward path as well and the unweighted average rate of our sample dropped by 19 bps year-on-year (y-o-y) and lies for the first time below 2.5%. In this latest quarterly review a number of updates and new charts have been added.
The second quarter of 2016 ended with the decision of the UK to sever its ties with the rest of the EU, thus opening a period of potentially high political and economic uncertainty throughout the continent, which will manifest its effects on mortgage and housing markets in the months and years to come. For the time being, house prices in the EU continue their upwards trend, on an aggregate level.
The first quarter of 2016 showed that in the EU outstanding mortgage lending increased while interest rates continued to decrease, although at a decelerating pace with respect to the previous quarters. Considering house prices, the overall trend was increasing, though heterogeneous among the different countries.
The last quarter of 2015 depicts a similar aggregate situation those of the previous quarters: overall recovery of gross lending figures due to improving economic environment; generally increasing or stable house prices; and historically low interest rates as a reflection of the expansionary monetary policies of the European Central Bank (ECB) et al.
The figures of this quarter still depict a picture of aggregate, though decelerating, expansion on a yearly basis of the mortgage market, with low interest rates and generally increasing house prices. However, some signs of change can be seen in the mortgage interest rate level, which in some countries on the continent started to invert its decreasing tendency, even before the Federal Reserve’s December 2015 decision to increase the reference rates for the first time in nearly 10 years. Housing prices have not inverted their generally upwards trend in line with the well-known supply/demand imbalances, the stickiness of the housing supply and the massive demographic changes due to the migratory influx.
The promising trend in EU mortgage and housing markets seen since 2014 also continued in spring 2015 with an increase in gross lending in nearly all countries. More favourable economic fundamentals, decreasing interest rates and a shortage of housing supply, especially in the most dynamic urban areas in Europe, pushed house prices upwards. However, there are large heterogeneities both across and within countries. Notwithstanding the dynamism of this last period, the amount of overall gross lending in the EU is still around 62% of the pre-crisis level peak in 2006. Besides the increasing demand for mortgages, the persistent low interest rate environment also started to shift the preference for mort- gage contracts from a variable to a xed rate in a number of countries.
The strong performance observed during Q3 2014 and Q4 2014 in EU mortgage and housing markets consolidated during Q1 2015. Gross lending grew strongly in most countries and house price developments
mirrored rising demand and improving sentiment. The interest rate environment continued to ease, further supporting growth.Nonetheless,mortgage volumes remain far from pre-crisis levels and fragmentation continues to be relatively high both between and within different EU countries, though interest rates on mortgages appear to be converging,
even on a nominal level.
The strong performance observed in Q2 and Q3 2014 in EU mortgage and housing markets was consolidated during Q4 2014. Gross lending grew strongly in most countries and house price developments mirrored rising demand and improving sentiment. The interest rate environment continued to contract, further fuelling mortgage markets. Nonetheless, the situation remains far from pre-crisis levels and fragmentation continues to be relatively high both between and within different EU countries, though interest rates on mortgages appear to be converging, even on a nominal level.
The performance of the EU mortgage and housing markets was significantly stronger during Q2 and Q3 2014 than in previous quarters. Gross lending grew in most countries, and house price developments mirrored rising demand and improving sentiment. The interest rate environment continued to contract, further fuelling the mortgage markets. Nonetheless, the situation remains far from pre-crisis levels, and fragmentation continues to be relatively high both between and within different EU countries.
The latest developments in mortgage markets in the EU largely reflect broader economic trends. Countries showing the first signs of economic recovery are also experiencing an improvement in their mortgage market indicators. As with the general economic situation and outlook, the developments in EU mortgage and housing markets are reflecting a highly fragmented picture, with different countries displaying different paces of recovery, both between each other and within themselves.
An easing in the intensity of the crisis is pointing to a possible recovery of many European economies, with potentially positive consequences for EU mortgage and housing markets. Nonetheless, economic fundamentals are still weak and jurisdictions are experiencing different paces of recovery, which is reflected in differing performance across the EU.
In Q3 2013, the proxy used for the EU27 markets1 indicates that gross residential lending increased by +7.0% q-o-q and +9.3% y-o-y to reach 49.2% of its 2007 average. This strong q-o-q performance was mainly due to the positive contribution of the UK (+6.4%) and France (+2.9%), owing to significant seasonal effects for both countries.
In Q2 2013, mainly resulting from the macroeconomic rebound in the euro area and further decreases in mortgage interest rates, gross residential lending in the EU27 increased by +2.0% year-on-year (y-o-y) and +2.9% quarter-on-quarter (q-o-q) in seasonally adjusted terms (i.e. the best performance since Q4 2010). Buoyant developments were observed in the Czech Republic, France, Germany, Hungary, Ireland and the UK.
In Q1 2013, outstanding residential lending contracted q-o-q for the second consecutive quarter in the EU27 and registered its lowest y-o-y increase since Q2 2011. Nevertheless, there were still significant differences across national markets: outstanding residential lending (in domestic currency) continued to increase robustly y-o-y in Belgium, France, Poland, Romania and Sweden, while noticeable deleveraging processes were observed in Hungary, Ireland, Portugal and Spain.
In Q4 2012, the total amount of outstanding mortgage lending increased y-o-y, but contracted q-o-q for the first time since Q2 2011, partly reflecting the noticeable household deleveraging in Ireland, Portugal and Spain.
As regards gross lending, in Q4 2012, the total amount decreased significantly in seasonally adjusted terms, despite substantial reductions in mortgage interest rates. For the whole year 2012, gross lending contracted in most markets, resulting from economic recession, poor economic prospects and low consumer confidence.
In Q3 2012, the total amount of outstanding mortgage lending was almost stable y-o-y in the euro area, while it slightly decreased in the UK and recorded a robust growth in Sweden and Romania. However, the aggregated figure in the euro area masked diverse growth dynamics in mortgage lending at country level: poor macroeconomic performance and worsening consumer and investor confidence led to a significant y-o-y contraction in Ireland, Italy, Portugal and Spain, while outstanding mortgage lending continued to grow in Belgium, France and Germany.
In Q2 2012, outstanding mortgage lending contracted again y-o-y in Hungary, Ireland, Portugal and Spain, partly caused by noticeable real GDP recession. Outstanding mortgage lending continued to grow slowly y-o-y in Denmark, Germany, the Netherlands and the UK, while it kept a steady pace in Belgium, France, Poland, Romania and Sweden. As regards gross lending, the total amount granted in Q2 2012 decreased y-o-y in most markets, in line with previous quarters. Once put into historical context, the amount of gross lending remained on an upward trend since Q1 2008 in Belgium, Denmark, France, and Sweden, while it was on a clearly downward path in the same period, in Hungary, Ireland, Portugal, Spain and the UK.
The unfavourable macroeconomic environment continued to negatively affect new mortgage lending in Q1 2012, with a year-on-year decrease in new lending for at least three consecutive quarters in Belgium, France, Ireland, Italy, Portugal, Spain and Sweden.
Housing markets’ conditions remained divergent across the EU. Whilst year-on-year house prices continued to increase in Belgium, France and Germany, decreasing house prices were still recorded in Denmark, Hungary, Ireland, Poland, Portugal, Romania, Spain and Sweden. In the UK, the prices posted their first increase since Q1 2011.
In Q1 2012, the numbers of building permits and housing completions fell to historical lows in several countries.
Mortgage interest rates in the EU recorded small movements in Q1 2012, as a result of moderate monetary policy easing.