ECONOMY

European Commission plans to bolster mortgage market

The European Commission’s plans for 2004 include the further liberalization of the mortgage loan market among the member states. Sources say the Commission aims to start breaking the national barriers which fragment this segment of the credit market, estimated at no less than 4 trillion euros. According to data recently published by the European Mortgage Federation (EMF), the mortgage market has been growing fast in the last few years but has no cross-border spread worth speaking of; the lack of interest among house or land buyers in borrowing from a bank outside their EU member state of residence is matched by a reluctance of banks to grant mortgage loans to citizens of other countries. This shortcoming contrasts sharply with the extensive practice of cross-border corporate lending and capital transfers for the purchase of shares of mutual funds. In the last 10 years, the volume of mortgage loans in the EU has grown by an annual average of 8.2 percent, doubling the total of 2 trillion euros in 1992. The current total amount involved of 4 trillion, which represents about 40 percent of the European Union’s gross domestic product, was obviously a figure unlikely to leave the large European banks indifferent, as they are thirsting for expansion outside national borders. Their interest has undoubtedly played a role in moving the Commission toward further liberalization. The development has evident implications for Greek banks, despite the small size of the country’s mortgage market, which has grown at an annual average rate of nearly 24 percent in the last 10 years – almost three times the EU average and faster than in any other member state. This is no doubt related to the fact that particularly in the 1998-2002 period, the decline in interest rates was the sharpest in Greece. According to the pundits, the main obstacles to a cross-border expansion of the mortgage market in the EU are legal issues, particularly regarding the reimbursement of banks from the auctioning of collateral items once a customer declares an inability to continue repayments. This points to the need for the adoption of common provisions among member states. Another serious obstacle is posed by the different national systems for subsidizing interest rates through tax breaks or exemptions to borrowers of up to certain levels of income. A third is the lack of a uniform system for evaluating real estate items; this obviously requires a great deal of work in order to minimize risks to the banking system from significant variations of property prices in future. Finally, not all housing credit institutions in the European Union enjoy the same easiness of access to capital and money markets, which results in different final costs.