Global mortgage industry: selected developed markets - statistics & facts
The mortgage sector has undergone major challenges since 2021, with soaring interest rates slowing the housing market and declining new business volumes. In many countries worldwide, taking out a loan is the most common way to become a homeowner, making the affordability of housing finance crucial for homeownership. These countries, usually with advanced financial sectors and lending practices, tend to have a high share of the population repaying a mortgage loan. The high-interest rate environment therefore has a significant impact on the housing market, household finances, and lenders.
Mortgages are vital to monetary policy and the functioning and stability of the financial system. With inflation mostly tamed, the anticipated mortgage interest rate cuts are expected to improve housing affordability and boost the housing market. Unless the housing supply is sufficient, however, affordability gains for homebuyers can easily be lost to a renewed cycle of growing house prices.
Impact of higher interest rates on the housing market
For over a decade after the global financial crisis, mortgage interest rates followed a downward trend. Despite the improving affordability of housing finance, the low interest rates fueled the growth of house prices. When inflation soared in late 2021, central banks tightened the monetary policy to contain the crisis. The increase in base interest rates imposed by central banks resulted in a surge in interest rates charged by mortgage lenders. With the cost of borrowing now dramatically higher and property prices at a record high, housing sentiment and transactions declined worldwide. Not only people buying their first home were affected, but also those considering a move, hence, suppressing the supply in the second-hand market. For homebuyers with an existing mortgage, that meant a dramatic increase in monthly payments. Borrowers were, therefore, less likely to refinance provided the option, further contributing to plummeting new mortgage lending.Where has mortgage lending declined?
In Europe’s largest mortgage markets, the UK, France, and Germany, new mortgage lending has plummeted since 2022. In Australia, new mortgage lending also declined from its peak in 2021, but despite the higher interest rates, the 2023 volumes remained above the long-term average. A split in the value of mortgage originations for refinancing and a house purchase in the U.S. shows that the mortgage interest hike has mostly affected the refinancing segment.Mortgages are vital to monetary policy and the functioning and stability of the financial system. With inflation mostly tamed, the anticipated mortgage interest rate cuts are expected to improve housing affordability and boost the housing market. Unless the housing supply is sufficient, however, affordability gains for homebuyers can easily be lost to a renewed cycle of growing house prices.
