21 January 2014

Fitch: European mortgage market performance to diverge further

The outlook for all major European residential mortgage markets has improved or stayed the same compared with a year ago, but performance among countries is diverging, Fitch Ratings says in a new report.

In the UK, the economic and housing market recovery will support short-term mortgage performance, and market-wide arrears will to continue to fall. But low rates and government initiatives such as Help-to-Buy are a risk over the medium-term. Lenders are again extending high loan-to-value mortgages and the market is showing signs of regional house price inflation.

Ireland faces a crucial year thanks to increased clarity on measures to resolve distressed mortgages. Fitch thinks Irish arrears will peak this year after more than five years of steep increases as existing arrears cases start being resolved and the inflow of new cases subsides due to a stabilising economy and housing market.

Fitch expects the Bank of Portugal non-performing loan ratio on housing loans to stabilise around 2.5 per cent in the next two years alongside a gradual recovery of employment, although performance is vulnerable to interest rate increases and high long-term unemployment.

In Greece, Fitch thinks arrears will peak in 2015. Levels of new arrears have begun to shrink as the economy starts to recover. The foreclosure moratorium, extended for another year in December, may continue to have an impact on arrears, but it delays the prospect of additional supply putting pressure on house prices.

In Spain, prices will continue to fall this year, thanks to a property overhang, banks selling at deep discounts, and sales by SAREB, before troughing in 2015 as improved affordability boosts demand. Fitch expects a further increase in the proportion of housing loans that are non-performing, following a sharp rise in 2013 on higher long-term unemployment and loss of benefits, and the Bank of Spain’s requirement that some refinanced mortgages are reclassified as non-performing.

Fitch expects new gross mortgage lending in most European countries to grow, due to the economic recovery and supporting policies. The eurozone periphery will recover from a low base and Fitch forecasts cautious growth in the Netherlands and Germany with stronger growth in the UK. Volumes in France should fall due to lower housing market and refinancing activity.

Fitch’s Global Housing and Mortgage Outlook includes forecasts for house price developments, arrears and mortgage lending volumes for 17 countries around the world and compares these trends between countries.

Press release

Global Housing and Mortgage Outlook (Fitch subscription required)

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