Last Updated: 20/11/2006 14:06
Europe’s house boom to end soon - EMF
Europe’s housing mortgage and price boom is likely to end soon but it is impossible to say at present if it will crash or land gently, the European Mortgage Federation said today.
In an annual report, the EMF said the mortgage industry had a bumper year in 2005 with above-average growth of 11 per cent in the volume of outstanding loans in the 25-nation European Union, topping the average growth rate of the past decade, 9.4 per cent.
Ireland was among the most dynamic of the euro zone countries in mortgage growth, just behind Greece.
Although the pace of price increases slackened in Ireland, France and Spain, it remained above 10 per cent in all three, and even in Britain, the slowdown of 2005 was followed by an acceleration this year.
Rises since December 2005 in the European Central Bank’s key rate, the repo rate, were pushing mortgage rates upwards and now raising the spectre of a genuine slowdown in housing, in some of the hottest housing markets at least, it said.
“Given that every boom is followed by a slowdown, the recent rises in the ECB repo rate would suggest that the next slowdown is likely to happen sooner rather than later,” the EMF said.
“However, the probability of this being a soft landing or the bursting of a bubble varies across the EU and the final effect remains to be seen,” it said in a statement.
House prices continued to rise in much of Europe last year although the pace slowed in some of the hottest spots of recent years, such as Britain, Spain, France and Malta, the report said.
Europe had so far seen nothing like the dramatic slowdown of the United States, where price growth dropped from 13 per cent in the third quarter of 2005 to 4.6 per cent in the second quarter of 2006, the weakest since 1999, it said. In 2005, Baltic countries Latvia, Lithuania and Estonia were the top spots for mortgage growth, with rates of 97, 94 and 80 per cent respectively, said the report from the EMF, the mortgage industry’s Brussels-based lobby at EU level.
The amount of mortgage debt rose in 2005 as a proportion of GDP, to 47.5 per cent for the EU-25, from 44.5 per cent in 2004, and 32 per cent back in 1996, the EMF report said.
Despite the surge in mortgage debt, lower interest rates and innovation in mortgage products - including longer-term contracts - kept the debt-servicing burden stable at roughly 12 per cent of disposable income, it said.
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