From 1st July the Council of Mortgage Lenders is integrated into a new trade association, UK Finance. For the time being, all UKF mortgage information will continue to be published on this website, and UKF member-only mortgage information will only be available here.

UK Finance represents around 300 firms in the UK providing credit, banking, markets and payment-related services. The new organisation takes on most of the activities previously carried out by the Asset Based Finance Association, the British Bankers’ Association, the Council of Mortgage Lenders, Financial Fraud Action UK, Payments UK and the UK Cards Association. Please go to for wider content and updates from UK Finance.

  1. Home
  2. News
  3. News & Views
  4. Mortgages in Europe: Different markets, similar outcomes

Mortgages in Europe: Different markets, similar outcomes


Published: 7 April 2016 | Author: Christine Whitehead, emeritus professor, London School of Economics

In this article, Professor Christine Whitehead reflects on some of the key themes of her latest book on European housing finance - and their implications for the UK.

Key features of many European countries over the last 25 years have been a shortage of housing and widespread availability of easier and cheaper credit. This has resulted in cheap credit being capitalised in sharply higher property prices. This is one of the reasons for governments and central banks across Europe becoming increasingly concerned about the links between housing finance markets and macro-stabilisation policies.

These were some of the themes of Milestones in European Housing Finance, a book on which Jens Lunde and I recently collaborated as editors.

The book clarifies developments in housing finance and their impact on housing systems over the last 25 years across some 20 European countries, including Austria, Australia (as a comparator), Belgium, the Czech Republic, Denmark, England, Finland, France, Germany, Hungary, Iceland, Ireland, the Netherlands, Norway, Poland, Portugal, Russia, Slovenia, Spain, Sweden and Turkey. There is also a chapter on EU regulation and three comparative chapters written by the authors.

Our starting point was that the countries we looked at would fall into a number of clearly differentiated categories, for example, northern, southern and eastern Europe. But the reality is far more complex.

De-regulation - and the financial crisis

In most countries, there had been a long period of expansion and de-regulation in mortgage lending, although from very different starting points. Most have also been adversely affected by the global financial crisis. However, each country has its own specific approach to providing mortgage finance to the private market, some with government still very much involved in delivery, while others rely on regulation and sometimes guarantees to organise effective provision.

What is clear is that the period since 1989 has been unique in terms of housing and financial market cycles. House prices and mortgage debt started to move more closely in parallel and both showed unprecedentedly strong growth from the middle of the 1990s onward.

Cheap credit and house prices

House prices could not have reached their current levels unless they had been funded through easier and cheaper credit. But, because of the lack of housing supply response, markets reacted by capitalising these reduced payments into higher house prices. Thus, easier credit and falling interest rates became important drivers behind an unprecedented increase in house prices and mortgage debt.

The use of equity as a source of housing finance for the initial purchase of the dwelling and thereafter over the lifetime of the mortgage also reduced remarkably between 1989 and 2015. Across a range of countries, competition increased among mortgage lenders; loan terms were lengthened significantly; repayment patterns were modified to help consumers; home-owners were enabled to make equity withdrawals; and down-payment requirements were reduced.

In some countries, loan terms doubled in length, running for much longer than the borrower’s working life. Variable rate mortgages became much more common, as did ‘taster’ loans and interest-only and foreign currency-denominated mortgages.

New funding models

Possibly the most important change in housing finance has been that, in most countries, a far more diverse range of funding methods is now used than was the case in 1989. Only a few countries use retail deposits as their only funding source. Securitised mortgages became more common, and then declined in the wake of US experience. The most important approach has been the increasing use of covered bonds, which, in some form or another, can now be found in 18 of the 21 countries.

The discussion at a recent CML-sponsored seminar following the launch of the book concentrated mainly on current experience and future expectations. The clearest message – which is particularly relevant in the UK context – is that, since the financial crisis, national governments and central banks in countries with liberalised mortgage finance systems have become increasingly concerned about the link between lending markets and macro-stabilisation policies. 

Quantitative easing and extremely low interest rates have put pressure on the prices of all asset classes, but particularly on residential property. Equally, rising housing debt and house prices and very low interest rates increase structural risks, as well as those faced by individual consumers. 

The result has been a range of additional regulatory requirements, involving credit assessments, stress tests in relation particularly to potential interest rate changes, loan-to-value controls and more general regulatory powers for central banks. What was also made clear at the recent seminar is that macro-stabilisation policy, while it impacts on housing markets, does not usually take account of those impacts – that is for government policy to address.

  • Jens Lunde has been associate professor in the department of finance at Copenhagen Business School since 1984, and has worked with a range of other academic institutions and the Danish government. Christine Whitehead is emeritus professor in housing economics at the London School of Economics, and has collaborated with international agencies, as well as the UK government and parliament.