UNECE – vdp Conference Housing Finance – Market and Structures
14 Nov 2016, Berlin
Reiner Lux, Member of the UNECE Real Estate Advisory Group and Managing Director of HypZert, welcomed the participants to the conference that had been been organized jointly by UNECE and the Association of German Pfandbrief Banks, vdp.
His words were followed by some opening remarks from Inger Zapffe, Member of the UN Economic Commission for Europe Committee of Housing and Land Management and Assistant Administration Director at the Norwegian State Housing Bank (Husbanken). Ms Zapffe emphasized the importance of affordability of decent housing in the context of the Geneva UN Charter on Sustainable Housing.
Concerning the real estate market, Thomas Hofer, vdpResearch, showed that the development of house prices differs considerably among the European countries. The global financial crisis had led to a strong decrease of prices in many countries. Since 2014, however, an upward trend can be seen in most countries.
With regard to the national markets, there is a remarkable difference between the house price growth in the major cities and the average price development. Housing demand is driven by population and employment. Stable employment and income perspectives also help to stabilise housing demand. Investments in new residential buildings and transactions of existing buildings are generally following the house price development.
Comparing the European countries, mortgage markets are very different in size. Five countries represent almost three-quarters of residential loans outstanding in the EU whereas the new member states (CEE-countries) account for less than 3 % of the whole European mortgage market.
The influence of the Central Banks is enormous: Since the beginning of the financial market crisis, Central banks have reduced their policy rates in order to encourage the real economy. As a consequence, mortgage interest rates have decreased continuously in the last eight years, overcompensating increasing house price to income ratios. For those cases where the purchase of a property is financed by a mortgage loan, this development led to lower debt service to income ratios. Owner occupied housing financed by borrowing has become more affordable in most of the European countries.
From the panel comparing Austria, Italy and Germany with the experts Dr. Matthias Tiemer, German lawyer, and Dr. Thomas Seeber, Austrian lawyer and country expert for Austrian and Italian law at the vdp’s Round table on Mortgage Law, there could be drawn the conclusion that formalisation and regulation of the process of mortgage loan contracting is important. But too much regulation has also its disadvantages: The consumer and the bank are „overloaded“ by hundreds of pages of loan documentation and consumer information that has to be read, registered or filled in. That does not create security but causes legal uncertainty for both banks and consumers. Creditworthiness assessment is important but there has to be space for the individual risk management of a bank. If the bank is held responsible for the default of a consumer loan due to mistakes during the creditworthiness assessment on the one hand, and if the criteria for creditworthiness are not clear enough on the other hand, the bank might become more hesitant to grant loans. Maybe there should be more differentiation taking into account the possibilities of national regulation of mortgage loans for consumers as the structures and problems occurring differ from country to country. As a consequence to this dilemma, a compromise between efficiency and consumer protection individually for each country is desirable.
Fernando Méndez, Director of International Relations of Property Rights and Commerce Registrars Public Corporation of Spain (Colegio de Registradores de España), explained the interrelation between the functionality of the land register and the efficiency of the mortgage execution process, underlying his issue with current statistical data. The effectiveness of mortgage execution is a very important aspect for the stability and efficiency of the mortgage market. For both banks and consumers a fair but also efficient and reasonable mortgage execution system is crucial to ensure the economic stability of the mortgage market and to ensure the usability of the mortgage as an instrument to secure housing loans.
Each loan needs funding. But which is the best way to refinance a consumer mortgage loan? Andreas Luckow, Deputy Head Cover Assets, vdp, illustrated the possibilities: deposits, savings collectives, MBS, covered bonds and public sponsorship. All of them have their advantages and disadvantages. The Covered Bond, though, offers several important advantages: Covered Bonds are appropriate for the refinancing of long-term and fixed rate loans and help to stabilise real estate markets as well as financial markets.
Last but not least it can be stated that in the daily mortgage loan practice, described for Germany by Sibylle Barent, Head of Legal, vdpPfandbriefAkademie, well trained and specialised professionals such as civil law notaries and land register administrators can help to render each single mortgage transaction more secure for all parties involved in it.
Case studies for three countries, presented by Dr. Thomas Seeber (Austria and Italy) and Sibylle Barent (Germany) illustrated the solutions that have to be found to solve legal and economic problems occurring in the daily consumer mortgage lending practice.