Real estate financing
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Real Estate Watch
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Chart 4.1.
Lending for house purchase in the EMU
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4. Real estate financing
European mortgage growth focused on some countries
Lending to the private sector in the EMU continued to present an accelerating profile, with rates of variation of nearly two digits in the case of households. Financing for house purchase accounts for around 70% of the loans granted to households and this implies that the household lending trend in the euro zone is a faithful reflection of the performance of mortgage financing. Thus, loans for house purchase have grown faster than other lending since 2000 and increased at rates of 12-13% in the first five months of 2006.
However, the more dynamic performance seen in aggregated mortgage loans in the euro zone is explained by the performance in Belgium, Germany, Spain, France, Ireland and the Netherlands, countries where real estate financing for households grew faster in the first five months of the year. In contrast, Greece, Italy, Portugal, Austria and Finland registered growth rates which were similar to at the end of 2005, or even lower. Nonetheless, it is important to point out that in every case, with the exception of Germany, the variation rates in lending for house purchase continued to register double-digit nominal increases. In fact, the significant dimensions of the German market, the source of nearly a third of EMU financing, together with its modest, albeit faster, growth (year-on-year 2.3% in May, as compared to 1.2% in December) gives the financing aggregate for the whole of the euro zone a downward bias.
Consequently, it is interesting to analyze how far the recovery in mortgage financing we are witnessing is the result of the performance of just a few countries. Chart 4.2 shows the contribution of the main markets in the euro zone to the aggregate's year-on-year growth rate. As can be observed, three markets alone, Spanish, France and The Netherlands, account for 9 p.p. of the 13.5 p.p. increase in lending for house purchase up until May 2006 . Thus, in a scenario of gradual deceleration of lending for housing in Spain, maintaining or increasing mortgage growth rates in the EMU will require other countries to forcefully take over in respect of financing.
The probability of this being so is high, considering the recent performance of the EMU's survey on bank loans. Between January and April this year, after slightly restrictive behaviour in the preceding period, European banks eased their mortgage conditions. In relation to previous quarters, the financial institutions considered that the improvements in the cost of financing and the change in outlook for both the economy as a whole and for the real estate sector, justified easing lending standards. In contrast, the extremely expansive tone of demand they perceived at the end of 2005 has become more moderate, although it is still clearly positive. The survey on bank loans drawn up for Germany gives a similar profile for demand for lending, although it is worth highlighting the notable change that has taken place in German banks' lending standards, which have moved towards much more eased thresholds than at the end of last year.
The relatively optimistic outlook for European banks as regards mortgages contrasts with a macroeconomic environment where
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In the case of Spain, it should be remembered that this information overestimates the increase observed as a result of the impact Circular 4/2004 had on the balance of mortgages.
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