personal finance

European mortgage market set for lowest growth in a decade

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The European mortgage market is on course to grow at its slowest rate for a decade this year, as lower economic growth and higher borrowing costs weigh on demand for loans.

Falling house prices across the eurozone are also a factor in EY’s forecasts that the mortgage market will grow by only 1.5 per cent this year and 2.4 per cent in 2024, compared with 4.9 per cent last year. 

The consultancy said rising interest rates — which reached a historic eurozone high of 4 per cent in September — and persistently high inflation had suppressed demand for mortgages.

“The housing market is taking the biggest hit,” said Omar Ali, EY’s financial services managing partner for Europe, the Middle East, India and Africa. “For households across Europe, high living and borrowing costs mean fewer people are buying houses, which means mortgage lending is falling to the lowest level in a decade.” 

Eurozone bank lending has shrunk this year after the European Central Bank made 10 consecutive interest rate increases, from an all-time low of minus 0.5 per cent in July 2022, to try to tackle rampant inflation.

Since September, the ECB has held rates at 4 per cent and investors predict it is unlikely to start cutting them until the second half of next year.

The UK housing market has begun to recover after prices and sales fell over the summer, but the eurozone is further behind in the interest rate cycle. 

EY’s annual European Bank Lending Forecast report, which was published on Monday, pointed to hard-hit housing markets in the eurozone — notably Germany — as well as tightening lending criteria from some banks, which have caused demand and availability of mortgages to shrink.

“Over the course of this year, as interest rates and geopolitical tensions have risen, Europe’s economy — and the banks that underpin it — have been tested to new limits,” said Nigel Moden, EY’s banking and capital markets leader for EMEIA.

But he added that the capital buffers European banks had built up over the past 15 years meant they were much better prepared for a slowdown in the mortgage market than they were after the global financial crisis.

“While bank lending growth is set to slow in the short term, the picture further out is one of recovery. It might be slow, but, in the absence of further, major unforeseen challenges, we expect steady economic and lending volume improvement.”

EY estimates that Europe’s mortgage market will grow by 3.3 per cent in 2025 and 3.2 per cent in 2026.

More broadly, lending across European banks is expected to grow by just 2.1 per cent in 2023, down from a 14-year high of 5 per cent last year.


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