Lower house prices in Europe are increasingly likely, predicts Moody’s

After years of euphoria due to extremely low prices, will the real estate market turn around? For Moody’s, the risk is increasing in Europe. According to the rating agency, the probability of a fall in property prices in Europe is growing, due to the slowdown in the economy and the rapid increase in interest rates since this summer. This risks, by making mortgages more expensive, lowering demand for housing and causing prices to fall to stimulate demand.

Increase in the attrition rate: Banque de France breathes new life into the real estate market

“The risk of a downturn in the European housing market and a large revaluation of residential land has increased,” Moody’s said in a note on Wednesday.

However, this drop in prices will not give more households access to property, as their purchasing power is reduced by inflation.

Exposed banks

Housing demand will also suffer from weak consumer confidence, with consumer risk aversion growing as the conflict between Russia and Ukraine continues to create economic uncertainty. predicts Moody’s.

A reversal of the market is enough to scare the banks, especially in Northern Europe, which are the most exposed, notes Moody’s, but they are also the ones with the most comfortable financial cushions. A sharp drop in prices of more than 15% is likely to put banks that have recently acquired mortgage-backed financial securities into trouble, particularly in France, Italy, Spain and the Netherlands. A fall in prices will also have implications for social housing in the UK, which is funded by groups which derive the majority of their income from property sales on the market.

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ZOOM- The British market in a zone of turbulence

Mortgages rushed out of the market and interest rates skyrocketed: Britain’s property market is rocked by the financial turmoil triggered by Downing Street’s costly budget plan. Since the Conservative Liz Truss government announced energy subsidies and massive, unclear tax cuts, a large number of products offered by mortgage lenders have been withdrawn. The mechanism that allows property prices to be set has been disrupted by “ the pound’s huge fall, a growing expectation of interest rate rises to come from the Bank of England, but also that drop in investor confidence “Summarised recently for AFP Sarah Coles, analyst at Hargreaves Lansdown. Investor fears in particular saw the pound fall and UK debt rates rise.

Bad news for candidates for the purchase, because mortgage interest rates have already been sky high for several months. After hovering around 2% in recent years, they are now around 5% on fixed rates for just 2 to 5 years – according to data from Moneyfacts. The Bank of England has raised its key rate regularly since the end of 2021 to tackle inflation, which is close to 10% over a year across the channel: it is currently set at 2.25%, and the monetary institution has hinted , that it continues to rise with even more force as the inflation risk has increased with Liz Truss’s budget package. Economists predict a policy rate close to 6% at the start of 2023, and borrowing rates to follow. In a country where the vast majority of mortgages are fixed for five years or less, many Britons with an outstanding loan are forced to renegotiate their contract and see their monthly payment jump, at the risk of being unable to keep up.

Tom Bill, ddirector of UK market research for the group motionless Knight Frank, recalls that prices had risen by about 23% since the beginning of the pandemic, and he sees them so far falling by about 9% next year. And, he explains, the Bank of England is probably watching the state of the property market with a magnifying glass: if it were to suffer too much and lead to a wider crisis in the UK economy, it would probably raise its interest rates less sharply…

(With AFP)