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The Belgian mortgage market in a European perspective

National Bank of Belgium

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Abstract

Housing loans are by far the largest liability of households, and they make up a large part of bank lending. Housing-related borrowing has implications for the transmission channels through which monetary policy affects financing conditions and, ultimately, real activity and price developments. The article presents the main results of the latest Structural Issue Report compiled at European level, entitled “Housing finance in the euro area”. It analyses the main developments in housing finance in Belgium, compared with those elsewhere in the euro area, over the period from 1999 to 2007, looking at mortgage indebtedness, features of housing loans (including fixed versus variable rate loans, maturity, loan-to-value ratios, redemption schemes, spreads on housing loans) and also at the way in which banks have financed these loans. Households’ debt for house purchase has increased in most euro area countries over recent years. Various factors account for this strong growth, such as lower interest rates, income and population growth and the effects of past deregulation and liberalisation that broadened the scope of both suppliers of mortgage loans and loan products. Moreover, some common trends in the characteristics of housing loans can be observed in the 15 euro area countries, namely a lengthening of maturities, an increase in the loan-to-value ratios and greater flexibility in repayment schedules. However, there are still substantial differences across countries, for instance, as regards the share of variable rate contracts. On the other hand, the funding of housing loans has changed markedly in the euro area over the last decade, with a rapid increase in the issuance of mortgage-covered bonds and securitisation of loans for house purchase. Nevertheless, retail deposits are still the main source of financing for loans. Considerable cross-country diversity in funding sources can still be observed, partly reflecting differences in legislation on new sources of funding, but also differences in consumers’ preferences for safe deposit investment, differences in mortgage demand dynamics and, to some extent, differences in borrowers’ preferences for fixed or variable interest rate loans. The data mostly refer to the situation prevailing before the start of the turmoil in the summer of 2007. The financial market crisis has had a deep impact on the afore-mentioned developments in the mortgage finance market. Some considerations about the way in which the financial crisis is affecting mortgage markets are given at the end of the paper. For instance, it may actually contribute to reversing the changes in the funding structure of euro area banks, and shifting this structure towards more traditional and less volatile sources of finance.

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