High mortgage growth
The growth of mortgage lending over the first quarter of 2006 has surprised even the most optimistic observers. Against forecasts for a considerable slowdown, the start of the year has proved more than impressive. According to data compiled by the Bank of Greece, mortgages rose in January by 33.5 percent year-on-year, reaching 46 million euros. Bank officials note that figures from February and the first days of March point to an even greater increase. The change in officially determined values of properties and the imposition of value-added tax (VAT) on new constructions as well as the rise in interest rates do not seem to have made a big impact on households, which keep on buying property. The momentum of mortgage credit for this year will force banks to revise their estimates upward. Banks’ initial forecasts referred to a 25 percent increase in mortgages, translating into new loans of 10.6 billion euros. However most banks now estimate that the growth rate will reach 30 percent in 2006, with some going as far as expecting a 35 percent rise. General conditions should be taken into account: In the last three years the Athens stock market has shown a steady northward course, resulting in high capital gains for some and a way out for many investors trapped by the 1999-2000 crisis. Some of this cash flow is being directed into the property market which in recent years has offered great returns and without unwelcome ups and downs in property prices. Despite the recent second rate rise by the European Central Bank, euribor remains very close to historic lows, rendering capital borrowing very attractive. However, the rise in interest rates and the prospect of their further increase do scare households, especially those who have taken out mortgages. Banks are therefore turning their communication ammunition toward fixed-rate loans. Although the burden for households from the first wave of interest rate hikes is limited, the psychological impact is far greater. The prospect of rates rising in the coming years and the risk of a great increase in the monthly installment to repay a mortgage create major uncertainty. This allows for a new field of activity for banks: One after another they announce new fixed-rate loans with more favorable terms – that is lower rates – so as to attract new borrowers and tempt those who have already taken floating-rate loans into the «security» of fixed-rate ones. Optimism Bank officials dismiss the fear that the rate rise will make it harder for households to repay their loan obligations. They stress that this rise is the effect of a significant improvement in the economies of the eurozone. In other words, demand grows, economies expand at ever greater rates and disposable income increases. The strengthening of European economies will have a positive impact on Greece. Growth in Europe will bolster both Greek exports and tourism. If the domestic economy improves, too, then the citizens’ disposable income will increase significantly, so that borrowers will be able to handle the rise of interest rates with relative ease. Banks are also optimistic as far as the further growth of the property market is concerned, with the housing sector standing out. They suggest that the market will keep expanding and disagree with the estimates about a «crash landing» in 2006. They do realize that in some cases there are certain excesses but these do not characterize the market. This optimism comes from the great borrowing scope of Greek households, from the high growth rate of the country’s economy and the rise in people’s living standards as well as the gradual incorporation in society of economic immigrants who further boost the cash flow in the real estate market. The high percentage of people who live in a house they own (75 percent) is one of the highest in Europe and should be examined carefully, bank sources say. Home ownership is more common in regional Greece, while in Athens it reaches 65 percent. However, someone who owns a (possibly inherited) house in regional Greece may also be renting a flat in a city. His housing needs in the city remain unsatisfied and so he may be a potential homebuyer.
