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Who is mortgaged today? The transformation of the real estate market

The bursting of the housing bubble during the last crisis has transformed the real estate market in countries that suffered the heaviest price of housing. In the years prior to the Great Recession, there was a relaxation of the financial conditions that allowed young people with low wages to mortgage in the very long term with the risk that this entails. The bursting of the bubble has had serious economic consequences that have changed the behaviour of banks and families. Now, the composition of mortgaged homes has changed: the profile is a person over 40 years old and has a high level of income. This transformation of the mortgaged has also occurred in countries that did not suffer the bubble, but for different reasons.

The European Central Bank shows this change in a work in which it compares the evolution of the real estate markets in the countries that experienced a price boom (Greece, Spain, Ireland, Italy, the Netherlands, Slovenia, Latvia and Estonia) and another group in which the price of housing was more stable (Belgium, Germany, France, Luxembourg, Austria and Portugal).

According to the monetary institute, Ireland, Estonia, Latvia and Spain suffered the biggest real estate bubbles. The increase in the price of housing clearly exceeded the growth of wages and was also supported by a rapid increase in household debt, an explosive combination for the sustainability of the price of housing. Shortly before the financial crisis, mortgages granted that accounted for 90% or more of housing value was 50%, which meant an increase in risk for banks when the crisis came.

The strong growth of credit in countries like Spain came hand in hand with a relaxation of financial conditions that changed the composition of home buyers towards a younger profile and relatively low income. These agents usually have a lower level of savings that prevented them from giving a relatively important entry for the purchase of housing, so they suffered greater leverage when asking for a loan with a mortgage.

The change after the crisis

After 2008, the situation in the most affected countries has changed drastically: "Despite the low-interest rates, we observed a sharp tightening of the conditions to grant a loan: reducing the mortgage granted with respect to the price of housing ( loan to value ratio), income (loan to income ratio) and other credit conditions ".

One of the factors that can explain this change is the increase in risk aversion of banks, logical behaviour given the greater default.

Despite the fact that interest rates have continued to fall, a relaxation of the conditions to give a mortgage comparable to those seen before 2008 is not being observed at present. Instead, a change in the composition of the mortgaged ones is observed. who are now older and with higher incomes.

Deepening the data of Eurostat, the statistics agency of Brussels, in 2007 68.4% of Spanish households with low income had a home ownership, compared to 56.7% today, a fall of almost 12 points percentage On the other hand, 83.6% of the households with the highest income had a house owned in 2007 and now this percentage has fallen to 82.7%, a reduction much lower than that of households with lower incomes. The factors that may have led to this transformation of the composition of the mortgaged may have to do with the banks that have imposed more demanding criteria when granting a loan, given the lessons learned from the crisis.

The factors that may have led to this transformation of the composition of the mortgaged may have to do with the banks that have imposed more demanding criteria when granting a loan, given the lessons learned from the crisis.

It is also likely that the precariousness of the labour market for some sectors has influenced given the greater impact of the crisis in terms of employment in the group of younger people who suffer higher unemployment rates, and therefore, are less solvent at the time to request financing. Finally, the crisis has been able to modify the behaviour of households, which has been able to promote changes in housing tenure habits, where the weight of rent increases with more intensity in younger people with lower income levels.

Although the change has been more acute in the economies that lived through a real estate boom, mortgages have shifted to the segments with higher income (and greater age) in almost the entire Eurozone: "Today in most of the countries analyzed the two quintiles with more income they account for 70% of mortgages recently granted, while the percentage of mortgages with more than 40 years has also increased. " The other side of this change is the young people and the households with lower income that now have more difficult to acquire housing and have to opt for rent.

The data show that the crisis has been more primed with the youngest, while the older ones have resisted better in their income level. On the other hand, it is older people who reach higher levels of income, so it is logical that they are the most likely to borrow and apply for financing.

Housing as an investment The reasons for this change in the composition of the mortgaged is due to a strong hardening of the conditions to grant credit in the case of countries that suffered a price boom. In countries that did not experience a bubble, it is more due to the considerable fall in the cost of capital due to the low-interest rates that have changed the investment portfolio of households from low-yield financial assets to real assets with high profitability.

This phenomenon has also had an impact in countries such as Spain; Given the low-interest rates that currently exist, investment in housing is attractive and it is the people with the highest levels of income who are in a position to request financing for this type of real estate assets.

The ECB document itself notes that "the largest increases in property ownership that is not the first residence or habitual residence have occurred in Germany, the Netherlands, Belgium and Spain." This shows that the idyll between the Spanish and the brick as a way of investment is still very much alive.

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