Mortgage arrears and repossessions in the EU have stabilised

There are clear signs of stabilisation in non-performing loans (NPLs) within European countries, an updated study from the European Mortgage Federation shows.

NPLs relate to arrears, doubtful loans and repossessions and the latest data is taken from the last quarter of 2010. This stabilisation follows short-term rises in NPLs seen from the third quarter of 2008 to the third quarter of 2009.

With the sole exception of Hungary, loans over three months in arrears do not account for more than 3 per cent of total outstanding mortgage loans in member states at end-2010.

The rise in NPLs observed in some EU markets since the onset of the crisis in Q3 2008 has slowed down in most member states. Looking at the causes of this mitigated NPL environment, Alessandro Sciamarelli, head of statistics, explains how:

“A moderate but continued economic recovery, boosted by a very low interest rate environment in response to accommodative monetary policies, contributed to the stabilising of housing and mortgage cycles which we now see.

“In addition, forbearance programmes agreed by government and banks helped to ensure that foreclosure remains ‘the very last resort’, as the process involves high costs not only for the lender but also the borrower.”

The study also highlights that in a long-term context, levels of NPLs after end-2009 were still significantly lower than those which were recorded in most EU countries during the previous housing recession (early 1990s).

A different macroeconomic scenario characterised the previous recession: higher mortgage interest rates (in accordance with a much more restrictive interest rate environment across the EU at the time), higher unemployment rates, and no monetary policy reaction since Central Banks could not lower their policy interest rates at a time of high inflation.

The study can be found on the EMF’s website, EMF Study on Non-Performing Loans in the EU.