Fitch: European Housing, Mortgage Rebound Set to Extend in 2016

European residential property and mortgage markets will maintain their post-crisis rebound in 2016, Fitch Ratings says. Nearly all European countries in our 2016 Global Housing and Mortgage Market Outlook have stable or stable/positive outlooks. Rising GDP, low rates, recovering credit flows, and improving labour markets will support the bounce-back in the eurozone periphery, while we forecast solid performance in the UK, "core" eurozone and Scandinavia.

All improved outlooks since last year's report are in Europe. A rate rise may test UK market confidence, and high unemployment, subdued growth, and low inflation are potential risks in parts of the eurozone. But the ECB will keep monetary policy loose in 2016, leaving the resilience of variable-rate eurozone markets like Spain, Portugal and Ireland to rising rates untested.

Greece is the only country globally with a negative market outlook.

The UK and Netherlands have stable/positive outlooks. The UK's supply shortage will support house prices, but affordability constraints will keep increases at 4%-5%. Prime portfolios are less vulnerable to an interest-rate rise than older non-conforming pools, and we forecast a small rise in arrears but no significant performance weakness.

The Dutch market will have 2% price increases and a 20% rise in new mortgage lending, with new entrants trying to increase market share by competing on price as traditional lenders pull back. This could boost prepayments.

For Spain and Ireland, the eurozone periphery countries whose housing markets were hit hardest by the financial crisis, we forecast mid-single-digit house price growth, further falls in three-month-plus arrears, and robust lending growth. Both markets have a positive macro backdrop, although Irish arrears will remain very high (14%) and lending growth is slowing after the central bank tightened LTV and loan-to-income rules.

Italian prices will stabilise on slightly better housing demand and credit supply, and the removal of property tax on first homes. But Greek house prices will drop another 4% due to economic uncertainty and a lack of mortgage credit.

Greek late-stage arrears have hit all-time highs but should gradually fall as the banking system stabilises.

France and Belgium are the only other European countries where we forecast declining prices this year, partly because of stretched affordability and, in Belgium, tax changes. But low rates and macro-economic and labour market improvements will keep arrears stable below 1% in all core eurozone markets.

Belgium and France experienced widespread refinancing to cheaper mortgages last year (as did Italy), easing affordability for existing borrowers. New mortgage lending volumes in France and Belgium will be unchanged or fall in 2016 as refinancing effects fade. In Germany, stronger affordability has supported stable home ownership rates - these are falling in most markets.

Mortgage performance in Denmark and Norway (included in our report for the first time) is relatively sensitive to interest rates but we do not expect these to rise in 2016-2017. Danish house prices will continue their resurgence, particularly in Copenhagen. House prices in western Norway will fall with oil prices even as they rise in the rest of the country - one of several examples of disparities among regions and property types within national markets.