Fitch: Crisis legacy fades in European housing, mortgage markets

The legacy of the global financial crisis in Europe’s housing markets is fading, although the pace of the recovery continues to vary between and within countries, Fitch Rating says. Home prices will rise again this year in Spain, Portugal, and Ireland, and stabilise in Italy.

We also forecast price rises in all core European markets other than the UK. Mortgage arrears are also stabilising in the markets where loan performance deteriorated significantly during the downturn. However, the arrears rate in legacy mortgage pools remains high in Italy, Portugal and Spain, and is still rising in Greece.

European markets will generally be supported by economic growth and readily available low-cost mortgage credit, and 11 of the 12 European markets in our annual Global Housing and Mortgage Outlook for 2017 are stable or stable/positive.

The UK is the only market where our outlook has deteriorated (to stable from stable/positive). We forecast static prices and gross new mortgage lending this year, reflecting stretched home purchase affordability, Brexit-related uncertainty, and changes to stamp duty and tax relief and stricter underwriting guidelines for buy-to-let landlords.

Prices in core European markets other than the UK will mostly increase by 3%-4%, although France is the only European market where we forecast the rate of price growth to increase this year versus last year. French regulators are among the few globally who are easing lending conditions to boost housing market activity.

The Netherlands will also see 3% price increases and will record the strongest growth (10%) in new mortgage lending among European core markets as non-banks compete to lend. Dutch arrears remain exceptionally low due to supportive fundamentals but also servicing innovations to detect and remedy borrower distress more quickly.

In the eurozone periphery, we forecast 4% price rises in Spain and Ireland. Spain is benefiting from non-resident as well as strengthening local demand. The increases in Irish home prices have slowed after an initial bounce in 2014-2015 and growth in mortgage lending volumes will be restricted by the limited housing supply in popular locations.

Prices will rise more slowly in Portugal, constrained by high unemployment and a large stock of vacant housing. Italian prices are bottoming out as demand and credit availability pick up, leaving Greece as the only European market where we forecast home prices will fall, albeit by less than in 2016. Both Greece and Italy are trying to improve mortgage enforcement processes to reduce the overhang of non-performing mortgage loans.

Norway will record the strongest price growth in Europe (6%) in 2017, but this is notably slower than last year (10%). Norway is one of a handful of markets globally where we think recent rates of price growth are unsustainable. This year’s slowdown is partly due to regional divergence – prices are already falling in oil-intensive regions. As in other markets, tighter lending restrictions will be offset by low rates and steady demand.

Fitch’s fifth annual Global Housing and Mortgage Outlook includes forecasts for house prices, arrears, and mortgage lending for 22 countries around the world and compares these trends between countries.

Source: Fİtch Ratings

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