The Pound drags European mortgage lending down

The latest version of Hypostat, the European Mortgage Federation’s annual statistical handbook on mortgage markets, has been published and the 2008 statistics reveal an acceleration of trends witnessed in 2007.

Across Europe there has been very modest growth in outstanding residential lending compared to the double digit growth of recent years along with a difficult market for mortgage funding.

Aggregate outstanding residential lending in the EU decreased for the first time on record, by 1.2% on the previous year, accounting for 49.8% of the EU’s GDP (51.2% in 2007).  

However, outstanding residential lending in the EU would have shown a modest increase if the Pound had not fallen sharply in late 2008. This is due to total outstanding residential lending being expressed in Euros, and the UK accounts for 24% of this total.

Housing activity

House prices continue to stagnate or fall with a drop in housing activity in the EU15.

Going forward, despite massive cuts in interest rates by Q4 2008, a poor outlook prevailed for 2009 with forecasts for deterioration in unemployment figures and slower or negative GDP growth into 2009.

Housing activity, including housing permits, housing starts and housing completions, slowed down almost everywhere in the EU, and in some countries returned to almost 1998 levels.

House price growth is a mixed picture across the EU, where some countries experienced moderate or dramatic falls, while in others house price growth rates in nominal terms remained positive though decelerating sharply. On average, house prices increased by 0.3% in the EU compared with 7% in 2007.

Interest rates

The first three quarters of 2008 saw an increase in the ECB central rate, slowing down further Europe’s residential mortgage markets. By the last quarter of 2008, the ECB dramatically reversed its monetary policy lowering the central rate by 175 basis points - from 4.25% in October 2008 down to 2.5% by year end. According to more recent data, these cuts were finally passed to mortgage interest rates in most EU markets.

The publication contains for the first time data on the United States, a key mortgage market but also the scene of the subprime loans crisis which triggered the global credit crisis.

Hypostat is available for download on the EMF website www.hypo.org.