Transcript Presentation Christine Whitehead

Financing housing since the crisis:
examples in Europe
Christine M E Whitehead
LSE and CCHPR, University of Cambridge
DRAFT – NOT FOR QUOTATION
“Housing finance in Europe in times of crisis”
SIEPS
Swedish Institute for European Policy Studies
Stockholm
11 April 2013
Introduction: context of the research
• Based on ENHR Housing Finance working
group survey together with published data
• Number 3 in a series of papers on mortgage
and housing market developments before and
after the financial crisis by Scanlon, Lunde and
Whitehead (see final slide)
• Covers aspects of the consequences of the
crisis
• Credit crunch has turned into a debt crisis and
recession in many countries - with impacts
back on to mortgage and housing markets
Research question, timing and
methodology
• What has happened to housing and
mortgage finance markets since
2009?
• How have governments and lenders
responded?
• Data gathering mainly early 2011with
updates 2012 and 2013
Housing market context
• Upswing in early 2000s: remarkable
(but by no means total)
synchronisation of markets in
developed countries
• Peak not simultaneous: 2006 / 2007/
2008
• Downswing: initially similar in
countries with significant debt, but
then variability in trajectories
Three Groups?
• Group 1: continuing and sometimes very
large declines in prices and activity –
although a subset now stabilising
• Group 2: more limited decline; some
recovery; and then often some reversal
• Group 3: continued (although usually
much slower) growth
• Another group where relatively little debt
finance (mostly Eastern Europe)
Trends in house prices: Initial fall in real house prices from peak and recent price changes
Country
% change in real
house prices: peak
in 2006/7/8 to
2009:4 (or trough if
earlier)
% change in real house
prices: peak in 2006/7/8
to 2012:4 (or 2012:3 for
some countries)
Latest year: nominal house
price change to 2012:4 (or
2012:3)
Latest year: real house
price change to
2012:4 (or 2012:3)
Group 1: Nominal and real prices falling
UK
Denmark
Spain
Ireland
The
Netherlands
-15.9 %
-19.7 %
-11.3 %
-24.7 %
-4.4 %
-17.2 %
(2012:3)
(2012:3)
-28.3 %
+ 1.9 %
(2012:3)
-0.8 %
(2012:3)
-34.2 %
-2.7 %
(2012:4)
-4.7 %
(2012:4)
-48.1 %
-10.5 %
(2012:3)
-12.0 %
(2012:4)
-21.4 %
-6.1 %
(2012:4)
-7.4 %
(2012:4)
-6.9 %
-9.7 %
Country
% change in real
house prices: peak
in 2006/7/8 to
2009:4 (or trough
if earlier)
% change in real house
prices: peak in 2006/7/8
to 2012:4 (or 2012:3 for
some countries)
Latest year: nominal house
price change to 2012:4 (or
2012:3)
Latest year: real house
price change to 2012:4
(or 2012:3)
Group 2: Peak in house prices in 2007, then price drop to a 2009 turnaround – and
sometimes a new house price drop in 2011-12
US
Finland
France
Sweden
- 18.8 %
- 8.8 %
- 9.6 %
- 6.3 %
- 25.8 %
+ 0.1 %
- 4.0 %
0.1 %
(2012:3)
(2012:3)
+ 3.0 %
+ 1.5 %
(2012:4)
(2012:4)
+ 3.0 %
+ 1.5 %
(2012:3)
(2012:3)
-1.3 %
-2.9 %
(2012:4)
(2012:3)
2.1 %
0.6 %
Country
% change in real
house prices: peak
in 2006/7/8 to
2009:4 (or trough
if earlier)
% change in real house
prices: peak in
2006/7/8 to 2012:4 (or
2012:3 for some
countries)
Latest year: nominal house
price change to 2012:4 (or
2012:3)
Latest year: real house
price change to 2012:4
(or 2012:3)
Group 3a: Real prices up
Norway
For 2007:3 to
trough 2008:4:
+ 14.4 %
(2012:3)
(2012:3)
+ 6.6 %
+ 5.2 %
(2012:3)
(2012:3)
+ 2.0 %
- 0.5 %
(2012:3)
(2012:3)
+ 3.3 %
+ 2.4 %
-11.6 %
Belgium
For 2008:2 to
trough 2009:2:
+ 3.4 %
-1.0 %
Canada
For 2008:3 to
trough 2009:2:
+ 10.1 %
-6.6 %
Group 3b: countries with recently relatively stable real house prices – and with actually
increasing housing prices.
Germany
Switzerland
-2.4 %
-2.1 %
+ 12.9 %
+ 18.0 %
(2012:3)
(2012:3)
+ 10.2 %
+ 8.6 %
(2012:3)
(2012:3)
+ 3.4 %
+ 4.1 %
Figure 1: Real house prices 1970:1 – 2012:4 - 6 countries with falling
prices since the 2006-07 peaks
Source: OECD house price statistics of 28th of January 2013.
Figure 2: Real house prices 1970:1 – 2012:4 – 4 countries: upturn,
peak in 2007, some house price drop, a 2009 turn around – and a new
house price drop in 2011-12
Source: OECD house price statistics of 28th of January 2013.
Figure 3: Real house prices 1970:1 – 2012:4 - 4 countries with actually
increasing real house prices
Source: OECD house price statistics of 28th of January 2013.
Figure 4: Real house prices 1970:1 – 2012:3 - 2 countries with recently
relatively stable real house prices – and with actually slightly increasing
real house prices.
Source: OECD house price statistics of 28th of January 2013.
Figure 5: Indices of housing transactions, 2006 – 2010 (2006 = 100) Group 1:
price falls
Figure 6: Indices of housing transactions, 2006 – 2010 (2006=100) Group 2:
double dip
Figure 7: Indices of housing transactions, 2006 – 2010 (2006=100) Group 3:
rising prices
Trends in Mortgage Markets
• Rapid declines in mortgage lending –
supply or demand determined?
• Increases in arrears and foreclosures –
more complex patterns than expected,
partly because of government
intervention based on past experience
Changes in gross new residential mortgage lending, 2007 - 2010
Numbers of new mortgage loans (lowest-highest last column within
each group)
2007 period
Ireland
UK
Spain
1,347,888
(December)
Belgium
Czech
Republic
Poland
Russia
Sources: Country experts
2008 period
2009 period
2010 period
Group 1: Prices falling
9,946
5,624
th
th
(4 quarter)
(4 quarter)
58,000
47,000
(November)
(November)
970,785
702,714
585,070
(December)
(September)
(September)
Group 4: Prices rising
23,195
33,156
(November)
(November)
Group 5: Not classified
39,385
45,390
(November)
(November)
189,000
230,000
(Annual)
(Annual)
15,000
34,000
(November)
(November)
% change
2009 period –
2010 period
-43%
-19%
-17%
43%
15%
22%
127%
Changes in gross new residential mortgage lending, 2005 – 2011
Value of new loans (EUR million) (lowest-highest last column within each group)
Country
2005
2006
Ireland
34,114
39,872
Spain
139,315
156,408
Denmark
77,592
49,993
USA
2,516,129 2,365,079
UK
421,253
504,654
Netherlands
114,134
119,872
Australia
Sweden
Finland
France
TO COME
43,885
41,290
25,957
27,000
134,500
149,080
Germany
Belgium
109,600
25,198
114,200
24,323
2007
2008
2009
2010
2011
Group 1: Prices falling
33,808
23,049
8,076
4,746 2,463
135,576
83,780
68,918
60,986 32,198
43,272
36,964
49,703
47,453 29,716
1,773,723 1,020,408 1,305,755 1,184,280
530,084
319,011
160,814
158,456 162,230
108,725
91,881
61,824
Group 2: Double dip
43,895
33,776
39,909
28,931
26,669
19,739
146,800
122,000
89,000
Group 3: Prices rising
119,600
121,300
114,600
22,825
21,531
22,076
Group 4: Not classified
672
1,456
19,630
13,375
9,330
Slovenia
Portugal
17,578
18,391
Czech
2,609
4,094
5,395
4,935
Republic
Russia
1,897
7,602
16,314
17,863
Source: Hypostat 2010; European Mortgage Federation
% change
2009-2010
% change
2009-2011
-41
-12
-5
-9
-1
-70
-53
-40
+1
-3
45,077 38,887
20,349
158,000 136,248
+3
122,000 145,600
26,768 28,074
+6
+21
+27
+27
-48
+77
+53
1,213
10,105
4,853
-17
+8
2,689
3,216
4,757
+20
3,455
9,411
+172
Percentage of residential mortgages over three months in arrears, late
2007- late 2010 (highest-lowest last column within each group)
2007 period
2008 period
2009 period
Group 1: Prices falling
1.21
1.44
3.6
Ireland
(December 06)
(June)
(4th quarter)
0.95
2.40
3.0
Spain
(December)
(December)
(September)
1.08
1.88
2.42
UK
nd
th
rd
(2 half)
(4 quarter)
(3 quarter)
0.85
1.88
USA
TO COME
(December)
(December)
0.14
0.32
0.57
Denmark
(December)
(December)
(November)
Group 2: Double dip
3.5
Sweden
(November)
<1
<1
0.7
Australia
November
(November)
(November)
Group 3: Prices rising
2.1
Belgium*
(November)
0.7
0.7
1.6
Norway
(November)
(November)
(November)
Group 4: Unclassified
3.5
5.4
6.9
Russia
(December)
(December)
(November)
1.3
1.5
5.2
Portugal
(November)
(November)
(November)
2.2
Czech
(December)
Source: Scanlon et al. (2011) and questionnaires
* Borrowers with at least one overdue payment
2010 period
5.7
(4th quarter)
2.58
(September)
2.13
rd
(3 quarter)
0.42
(November)
1.5
(November)
0.7
(November)
2.1
(November)
1.7
(November)
7.0
(November)
5.2
(November)
2.9
(November)
Reasons for Differential Arrears
• Careful lending – eg France; Germany
• Variable interest rates/lower rates of
unemployment than expected – UK;
Denmark; Netherlands?
• Formal forbearance procedures –
Ireland; UK
• Legal/cultural attitudes to foreclosure –
at one extreme Spain – at the other
France
Foreclosures late 2009 – late 2010
(alphabetical within each group)
Denmark
Ireland
Netherlands
Spain
UK
USA
Australia
Sweden
Belgium
Norway
2009 period
2010 period
Group 1: Prices falling
417
426
(November)
(November)
0.01 %
0.01 %
(November)
(November)
550
n.a.
(November)
92,632
118,000
(Annual)
(Annual)
12,200 – 0.11 %
8,900–0.08%
rd
(3 quarter)
(3rd quarter)
TO COME
Group 2: Double dip
App 0
App 0
(November)
(November)
1%
<1%
(November)
(November)
Group 3: Prices rising
1335
1478
(November)
(November)
486
704
(November)
(November)
Mortgage Products
• Credit assessments tightened
• Increasing limitations on range of mortgage
products – demand? Institutional response?
Increased regulation?
• Interest –only down being treated like annuity
mortgages (UK) and special tax provisions
(Netherlands)
• Limitations on maximum LTV - Sweden
• But evidence does not suggest that products
themselves were are major source of
arrears/foreclosures
Changes in availability of mortgage products January 2009 – May 2011
(alphabetical by country in each group)
Interest-only
High LTV
Denmark
Up
No change
Ireland
Netherlands
Spain
Down
Down
Not available
Down
Up
Down
UK
Down
Down
Australia
Up
Down
Finland
No change
No change
Belgium
Germany
No change
Down
Norway
Down
Down
Austria
Czech
Down
Down but
not much
used
Not available
Poland
Portugal
Source: Country experts
Down
High loanto-income
Group 1: Prices falling
Credit
No change
evaluation
tightened
No data
No data
Down
Down
Down
Credit
evaluation
tightened
Group 2: Double dip
Little change
in equivalent
metric
No change
No change
Group 3: Prices rising
Down
No change
Down
Long terms
Reverse
Not common
Fees increased by
some banks
No data
Up
Little change
Little used
No change
No change
Not legal
Up
‘Frame loans’
limited
Down
Group 4: Unclassified
Limited
Max 20 yrs
availability
Other
Little
demand
Foreign currency
loans down.
Self-certification
down
Down
No change
Down
Not legal
Down
Not available
Down
Down
Not available
WS-01: Housing Finance and Regulation
New regulation of mortgage lending in selected
countries (alphabetical)
Australia
Belgium
Czech
Denmark
Mortgage exit fees on variable-interest loans banned on new loans from 1 July 2011
None
None
Discussion about limiting interest-only and adjustable-rate mortgages but no regulations yet
Banks urged not to grant mortgages at over 90% LTV (Spring 2010). Lenders must assess
Finland
borrower ability to pay if interest rates were 6%, and inform borrowers of results.
France
Bank of France directs lenders directed to limit the length of loans
Ireland
2010 recommendation against loans to borrowers in negative equity later relaxed
Netherlands
Limits on loan-to-income ratio; maximum 50% of loan to be interest-only
New law to permit reverse mortgages. Foreign currency borrowers permitted to choose
Poland
currency in which to pay; also down payment requirements increased and tighter credit
assessment for foreign currency loans
Portugal
Regulation to clarify right of lenders to change interest rates during loan period
Proposals for ceilings and floors for variable mortgage rates; measures to expedite
Spain
foreclosures; proposals to make mortgages non-recourse loans
Sweden
LTVs capped at 85%
Proposals to limit issuance of self-certification mortgages; require more stringent
UK
affordability tests for interest-only loans; pressure to transfer from interest only to standard
mortgages
Source: Country experts
Impact on Investment
• Much less variation in supply response
across countries – impact of lack of
confidence, Euro recession and
unemployment as well as credit crunch
• Some countries still suffering
constraints on availability of funds – for
developers as well as purchasers
• Initial stimulus packages mainly
replaced by public expenditure cutbacks
• Impact of shifting tenure structures
Change in residential building permits 2007-2011
Countries
Percentage (%)
EU27
-44
Spain
-89
Ireland
-86
Greece
-75
Portugal
-71
Hungary
-68
Cyprus
-60
Denmark
-43
United Kingdom
-42
Netherlands
-35
Norway
-33
Poland
-28
Sweden
-18
France
-13
Germany
-7
Switzerland
36
Source: RICS Research – European Housing Review 2012
Outlook: prices and activity
• Have prices bottomed out? – some signs of
stabilisation except in worst affected countries
• Equally there are concerns in countries where price
increases are occurring notably Norway, Sweden
and against past trends, Germany and Switzerland.
• Some countries with strong austerity packages
beginning to use housing as a means of expansion
– but as yet no significant impact – exception
France?
• But low levels of activity in mortgage markets
expected to be maintained as much because of
lack of demand than funding constraints
Outlook: Mortgage Regulation
• Numbers of mortgage products have declined and
generally become more traditional to the country
• Greater access constraints for first time buyers –
but also lack of demand
• Changes in regulatory processes and potential
impact of Basle III
• So far, long term regulatory change more rhetoric
than reality in part because of low levels of activity
– some evidence of reversal of strong constraints
• Macro-stability issues seen as increasingly
important – both with respect to mortgage
markets and funding for developers
Outlook: housing market adjustment
• Levels of development activity remains low in
most countries
• Owner-occupation declining in some countries
• Capacities to transfer stock to private renting
varies between countries
• Concern that real economic growth potential
limited at least for some years
Conclusions
• Trajectories with respect to house prices have
varied greatly since the financial crisis
• More commonality in mortgage market behaviour
with lower levels of activity and some constraints
on mortgage products-. Those that were more
flexible have tightened controls – so now more in
line with traditionally more regulated countries
• But little agreement with respect to mortgage
products on what is risky
• Currently the real economy constraining activity as
much as regulators – but if and when there is
significant improvement what then?
Sources and Contacts
This presentation is based on research by KJ Scanlon, J Lunde
and CME Whitehead and the ENHR Housing Finance Working
Group.
It is a draft and not for quotation.
Earlier papers are published in the International Journal of Housing Finance:
Scanlon, K, Lunde, J and Whitehead, C (2008) ‘Mortgage product innovation in advanced economies: more
choice, more risk’ International Journal of Housing Policy 8:2, 109-131
Scanlon, K, Lunde, J and Whitehead, C (2011) ‘Responding to the housing and financial crises: mortgage
lending, mortgage products and government policies’ International Journal of Housing Policy 11:1, 23-49
Contact: [email protected]