The last few years have seen unprecented drops in housing prices in some of Europe’s biggest countries. Spain, so far, has been the biggest victim, with prices continuing to fall some four years after the crash, whilst other countries have shown slight, and many fear temporary, rebounds.
In the UK, house prices fell only a fractional 1% last year, suggesting our market may have bottomed out. A quick glance at a service like the Santander calculator for mortgages reveals that some of the deals on offer on the UK at the moment are cheaper than anything around for the last 15 years. This is helping to bolster the market, but it also has its drawbacks.
The low mortgage rates come as a side effect from historically low central bank interest rates all across the continent. The Bank of England is only charging banks 0.5% to borrow, which means that Banks can charge customers lower interest rates and still make a healthy profit.
So far, so good, the flip side however is that due to government lending restrictions and the abject state of housing markets across Europe, banks are being more careful than ever about who they’re lending to. The end result being, if you can get a mortgage, it’s fantastically cheap, however, fewer people are likely to be able to access this cheaper finance.
So what are the slightly longer term prospects like? The Rics Housing Review recently suggested that there’s no end in sight to the current problems in the housing market. Spain, as mentioned above, and particularly Ireland are still facing steep drops in housing prices, with prices in Ireland having fall an astonishing 50% since the start of the crisis.
Even though some other countries are picking up, even the best performing nations are only fractionally recovering the ground that they lost during the crash.
And why does all this matter? Well, Britain’s biggest banks have operations that span the continent, and drops in housing prices mean more people are in negative equity, or approaching it. This puts a greater strain on bank resources, and, with high unemployment figures across the country (nearly 11%) there’s a greater risk of mortgage defaults now than ever before.
All of which comes together to suggest that, for the average home-owner at least, things could be tricky for quite a while yet.