European Mortgages 2003

TABLE OF CONTENTS
ABOUT DATAMONITOR 2
CHAPTER 1 EXECUTIVE SUMMARY 3
Underlying drivers of European Mortgage Markets 3
Interest rates are low across Europe 3
Marriage has become less common while the prevalence of divorce has increased 5
Key issues in European mortgage markets 7
The importance of owner occupation differs greatly within Europe 7
European mortgage market gross advances amounted to EUR 773.4 billion at the end of 2002 9
Developments in the mortgage bond market 10
Country specific chapters 11
The amendment of the Mortgage Bank Act, 2002 11
Accounting for the Spanish house price boom 12
Competitor profile: Rabobank 13
A brief history of Rabobank 13
Rabobank has a 24 per cent share of the Dutch mortgage market 17
A SWOT analysis of Rabobank 18
Forecast of gross advances in the Swedish mortgage market, 2003-2007 20
The Future of European Mortgage Markets 22
CHAPTER 2 INTRODUCTION 48
What is this report about? 48
Who is the target reader? 48
How to use this report 49
Scope 50
Related reports 50
CHAPTER 3 UNDERLYING DRIVERS OF EUROPEAN MORTGAGE MARKETS 52
Macroeconomic conditions 52
With a few exceptions unemployment has fallen in Europe over the last decade 52
Interest rates are low across Europe 56
Real GDP growth has slowed in the majority of European economies 59
Demographic factors 60
Population size and structure 61
Households are decreasing in size across Europe 64
Marriage has become less common while the prevalence of divorce has increased 66
There is wide variation in the age at which people leave the parental home within Europe 70
Conclusion 73
CHAPTER 4 KEY ISSUES IN EUROPEAN MORTGAGE MARKETS 74
The size and composition of European housing stock 74
The number of dwellings per 1,000 inhabitants has increased across the European Union 75
The importance of owner occupation differs greatly within Europe 77
Ireland can boast the youngest dwelling stock in the European Union 81
House prices, 1998-2002 83
Ireland, the UK, Spain and the Netherlands have seen house prices rocket 83
Mortgage lending, 1998-2002 88
European mortgage market gross advances amounted to EUR 773.4 billion during 2002 88
European mortgage market balances outstanding stood at EUR 3,702 billion at the end of 2002 90
Mortgage balances outstanding as a percentage of GDP vary widely within Europe 93
The number of residential mortgage loans advanced in Europe surpassed 3.1 million in 2002 96
Mortgage product trends within Europe 98
Variable and fixed rate mortgage products vary in popularity within Europe 98
The changing face of mortgage funding in Europe 104
Explaining the ways that mortgage lending is funded 104
Developments in the mortgage bond market 108
Regulation of European mortgage markets 109
Basel II: big changes on the horizon in 2006 109
European Code of Conduct on Home Loans 113
Mortgage distribution channels 115
Branches remain the most important mortgage distribution channel 115
Conclusion 119
CHAPTER 5 THE FRENCH MORTGAGE MARKET 121
Summary of key issues 121
State involvement is significant in the French property market 124
Competitor profile: Crédit Agricole 125
A brief history of Crédit Agricole 125
A leader in the French mortgage market 128
La Poste: a new competitive threat to Crédit Agricole 132
A SWOT analysis of Crédit Agricole 133
Forecast of gross advances in the French mortgage market, 2003-2007 135
Economic difficulties will harm the mortgage market 135
CHAPTER 6 THE GERMAN MORTGAGE MARKET 138
Summary of key issues 138
The low level of homeownership: a restriction on the German mortgage market 141
Regulation 143
The amendment of the Mortgage Bank Act, 2002 144
Competitive profile: BHW 145
The Bauspar system explained 145
A brief history of BHW 149
Although Bauspar is still its primary product, BHW has undertaken a major shift in focus over the last few years 152
A SWOT analysis of BHW 154
Forecast of gross advances in the German mortgage market, 2003-2007 156
A higher level of homeownership will boost the mortgage market but only over the long-term 156
CHAPTER 7 THE IRISH MORTGAGE MARKET 159
Summary of key issues 159
Irish house prices have rocketed 162
Regulation 165
The introduction of the Pfandbrief concept into Ireland 165
Recent developments in Irish housing policy 165
Competitor profile: First Active 167
A brief history of First Active 167
First Active is the fourth largest mortgage lender in Ireland 171
First Active brings the current account mortgage comes to Ireland 174
A SWOT analysis of First Active 176
Forecast of gross advances in the Irish mortgage market, 2003-2007 178
Affordability constraints will hinder the market’s growth 178
CHAPTER 8 THE ITALIAN MORTGAGE MARKET 181
Summary of key issues 181
The ever-growing Italian owner occupied sector 184
Regulation 186
The Banking Law 186
Competitor profile: Banca Woolwich 186
A brief history of Banca Woolwich 186
Banca Woolwich has become a significant force in the Italian mortgage market 187
A SWOT analysis of Banca Woolwich 193
Forecast of gross advances in the Italian mortgage market, 2003-2007 195
The increasing propensity for Italians to borrow will fuel a growing mortgage market 195
CHAPTER 9 THE DUTCH MORTGAGE MARKET 198
Summary of key issues 198
Following several ‘hot’ years Dutch price increases have now slowed 201
Creating a favorable environment for Dutch home buyers 203
Regulation 204
The 2001 income tax reforms: affecting second home owners 205
Competitor profile: Rabobank 205
A brief history of Rabobank 205
Rabobank has a 24 per cent share of the Dutch mortgage market 209
A SWOT analysis of Rabobank 211
Forecast of gross advances in the Dutch mortgage market, 2003-2007 213
The increasing level of owner occupation and steadily increasing house prices will account for rising gross advances 213
CHAPTER 10 THE SPANISH MORTGAGE MARKET 216
Summary of key issues 216
Accounting for the Spanish house price boom 219
Regulation 222
Improving the position of the cajas 222
Competitor profile: Banco Popular 224
A brief history of Banco Popular 224
Banco Popular has increased its presence in Spain 224
Banco Popular is relatively well positioned across its product portfolio 226
Banco Popular’s expansion into Portugal: examining the motives and the likely outcomes 230
A SWOT analysis of Banco Popular 232
Forecast of gross advances in the Spanish mortgage market, 2003-2007 233
Growth will remain strong in the Spanish market 233
CHAPTER 11 THE SWEDISH MORTGAGE MARKET 236
Summary of key issues 236
A low level of construction is constraining the Swedish mortgage market 239
Regulation 241
Bringing the Swedish covered bond market into line with those elsewhere in Europe 241
Competitor profile: Spintab 242
A brief history of Spintab 242
Maintaining operating profits despite falling staff numbers 244
A diversified distribution network 245
Taking top spot in the mortgage market 246
A SWOT analysis of Spintab 249
Forecast of gross advances in the Swedish mortgage market, 2003-2007 251
The economy’s reaction to the rejection of the euro is key 251
CHAPTER 12 THE UK MORTGAGE MARKET 254
Summary of key issues 254
UK house prices have exploded 258
Regulation 264
The FSA has a new regulatory remit 264
Competitor profile: Northern Rock 266
A brief history of Northern Rock 266
Northern Rock: a small but successful mortgage lender 268
Accounting for Northern Rock’s success 272
A SWOT analysis of Northern Rock 277
Forecast of gross advances in the UK mortgage market, 2003-2007 279
Higher interest rates will make it a different environment over the next five years 279
CHAPTER 13 THE FUTURE OF EUROPEAN MORTGAGE MARKETS 282
Conclusions from the market forecasts 282
The changing dynamics of the forecast markets 282
Slower growth will result in a new business environment over the next five years 286
Newly emerging European mortgage markets 287
Market conditions are now improving 288
Mortgage markets have benefited as countries have prepared for EU membership 290
CHAPTER 14 APPENDIX 294
Supplementary data 294
Underlying drivers of European Mortgage Markets 294
Key Issues in European Mortgage Markets 297
Country specific chapters 298
Definitions 302
Research methodology 305
Forecasting methodology 305
Bibliography 306
Relevant Datamonitor publications 306
Reports 306
Briefings 307
Future Datamonitor Publications 308
Relevant links 308
Europe wide associations and organizations 309
Country specific associations and organizations 309
Lenders 311
Datamonitor Financial Services Consulting 314
SPP writing team 316
How to contact experts in your industry 317


LIST OF TABLES
Table 1: Eurozone interest rates since the introduction of the single currency on January 1st 1999 4
Table 2: Countries and competitors covered in chapters four to eleven 11
Table 3: Countries and competitors covered in chapters four to eleven 50
Table 4: Unemployment as a percentage of the economically active population in Europe, 1993-1997 55
Table 5: Unemployment as a percentage of the economically active population in Europe, 1998-2002 56
Table 6: Eurozone interest rates since the introduction of the single currency on January 1st 1999 57
Table 7: Real GDP growth rate in European countries, 2000-2002 59
Table 8: Population change in European Union countries by source of change, 1980 and 2002 63
Table 9: Life expectancy at birth in European Union countries, 1980 and 2002 64
Table 10: Average household size in European Union countries, 1980-2001 65
Table 11: Marriages per 1,000 of the population in the European Union, 1980 and 2002 68
Table 12: Rate of divorce per 1,000 people in European Union countries, 1980 and 2002 70
Table 13: Age upon which 50 per cent of young people are living away from home in European Union member states, 2001 73
Table 14: Dwellings per 1,000 inhabitants in the European Union, 1980-2001 76
Table 15: Percentage of dwelling stock that is in owner occupation within Europe 79
Table 16: Age of dwelling stock in the European Union 83
Table 17: Indexed European house price trends, 1998-2002 86
Table 18: Indexed European house price trends, Q1 2001- Q1 2003 88
Table 19: European mortgage market gross advances, 1998-2002 90
Table 20: European mortgage market balances outstanding, 1998-2002 93
Table 21: Residential mortgage balances outstanding as a percentage of GDP in Europe 96
Table 22: The number of mortgage loans advanced against residential property, 1998-2002 98
Table 23: The varying popularity of variable, short-term fixed and long-term fixed rate mortgage products within selected countries in Europe 101
Table 24: The timescale for the introduction of Basel II within the European Union 111
Table 25: Countries that had achieved 100 per cent implementation of the European Code of Conduct on Home Loans by the end of 2002 114
Table 26: Number of branches in Europe, 2002-2005f 119
Table 27: French mortgage market fact sheet 123
Table 28: French mortgage market fact sheet continued 124
Table 29: Balances outstanding for the five largest lenders in the French mortgage market, 2002 130
Table 30: Forecast gross advances in the French mortgage market, 2003e-2007f 137
Table 31: German mortgage market fact sheet 140
Table 32: German mortgage market fact sheet continued 141
Table 33: Private Bausparkassen in Germany 147
Table 34: Public Bausparkassen in Germany 148
Table 35: Value of new Bauspar savings deposits by private Bausparkasse, 2002 151
Table 37: Forecast of gross advances in the German mortgage market, 2003e-2007f 158
Table 38: Irish mortgage market fact sheet 161
Table 39: Irish mortgage market fact sheet continued 162
Table 40: The percentage of houses priced at more than EUR 200,000 in Dublin and Ireland 164
Table 41: The demutualization of First National Building Society in 1998 was one of a number of demutualizations that have occurred in Ireland since the early 1990s 168
Table 42: Balances outstanding for the five largest lenders in the Irish mortgage market, 2002 173
Table 43: Forecast of gross advances in the Irish mortgage market, 2003e-2007f 180
Table 44: Italian mortgage market fact sheet 183
Table 45: Italian mortgage market fact sheet continued 184
Table 46: Balances outstanding for the six largest lenders in the Italian mortgage market, 2002 191
Table 47: Forecast of gross advances in the Italian mortgage market, 2003e-2007f 197
Table 48: Dutch mortgage market fact sheet 200
Table 49: Dutch mortgage market fact sheet continued 201
Table 50: Average property prices in the Netherlands, 1998-2002 202
Table 51: Key measures of Rabobank’s membership and branch infrastructure, 1998- 2003 H1 208
Table 52: Balances outstanding for the largest five lenders in the Dutch mortgage market, 2002 209
Table 53: Forecast of gross advances in the Dutch mortgage market, 2003e-2007f 215
Table 54: Spanish mortgage market fact sheet 218
Table 55: Spanish mortgage market fact sheet continued 219
Table 56: Nominal and real mortgage rates in Europe, Q3 2002 222
Table 57: The five largest lenders in the Spanish mortgage market, 2002 228
Table 58: Forecast gross advances in the Spanish mortgage market, 2003e-2007f 235
Table 59: Swedish mortgage market fact sheet 238
Table 60: Swedish mortgage market fact sheet 239
Table 61: FöreningsSparbanken, Spintab’s parent, is one of the major banking groups in Sweden 243
Table 62: Mortgage credit institutions in Sweden and their ownership 244
Table 63: Spintab’s distribution network 246
Table 64: Balances outstanding for the five largest mortgage credit institutions in Sweden, 2002 248
Table 65: Forecast of gross advances in the Swedish mortgage market, 2003e-2007f 253
Table 66: UK mortgage market fact sheet 257
Table 67: UK mortgage market fact sheet continued 258
Table 68: UK monthly house price increases according to Halifax, 2000-2003 261
Table 69: Housing transactions and the transaction costs associated with moving home in Europe 264
Table 70: Northern Rock’s branch network, 1998-2002 268
Table 71: Balances outstanding for the seven largest lenders in the UK mortgage market, 2002 270
Table 72: Market share of Northern Rock and the five largest UK mortgage lenders, 1998-2002 271
Table 73: Forecast of gross advances in the UK mortgage market, 2003e-2007f 281
Table 74: Forecasts of gross advances in eight European mortgage markets, 2003e-2007f 285
Table 75: Share of gross advances in the eight forecast mortgage markets, 2003e-2007f 285
Table 76: New member states and applicant countries to join the European Union 291
Table 77: Changes in the Swedish base rate since January 1999 294
Table 78: Changes in the Danish base rate since January 1999 295
Table 79: Changes in the UK base rate since January 1999 296
Table 80: Percentage share of total European gross advances by country, 1998-2002 297
Table 81: Percentage share of total European balances outstanding by country, 1998-2002 298
Table 82: Exchange rates applied in the UK and Sweden country specific chapters 298
Table 83: Balances outstanding and market share for the 30 largest lenders in the UK mortgage market, 2002 299
Table 84: Indexed mortgage balances outstanding by competitor in the UK mortgage market, 1998-2002 300
Table 85: Additional competitor balances outstanding data not presented in chapter eight and eleven 300
Table 86: Competitor information for markets not covered in chapters four to eleven 301


LIST OF FIGURES
Figure 1: The eurozone rate and the Bank of England base rate remain low. However, at times since 1999 there has been a large differential between them 5
Figure 2: Marriage trends in Sweden, and particularly in Denmark, have bucked those in the rest of Europe over the last two decades 7
Figure 3: Three countries in Europe have 80 per cent or more of their dwelling stock in owner occupation while a further five have less than 60 per cent of dwellings in this form of tenure 8
Figure 4: In 2002 mortgage market gross advances in the UK accounted for more than 40 per cent of the European total 10
Figure 5: At the end of the first half of 2003 Rabobank’s total assets stood at more than EUR 400 billion 15
Figure 6: Rabobank has decreased its number of member banks despite a more than 100 per cent increase in its number of members 16
Figure 7: A SWOT analysis of Rabobank 20
Figure 8: Gross advances in the Swedish mortgage market will increase at a compound annual growth of 3.3 per cent between 2003 and 2007 and amount to EUR 28.1 billion by the end of the period 22
Figure 9: Over the next five years the UK will remain the largest mortgage market in Europe judged in terms of gross advances. However, it will no longer be the fastest growing 23
Figure 10: With the exception of Germany, unemployment as a percentage of the economically active population in the five major European economies has fallen over the last decade 54
Figure 11: The eurozone rate and the Bank of England base rate remain low. However, at times since 1999 there has been a large differential between them 58
Figure 12: In 2002 Ireland had the fastest growing population in the European Union 62
Figure 13: Marriage trends in Sweden, and particularly in Denmark, have bucked those in the rest of Europe over the last two decades 67
Figure 14: The UK is the only EU member state in which divorce has become less common over the last two decades 69
Figure 15: Young people in southern Europe live with their parents for longer than do young people in northern Europe 72
Figure 16: Austria is the only country in the European Union to experience a decrease in the number of dwellings per 1,000 inhabitants over the last two decades 75
Figure 17: Three countries in Europe have 80 per cent or more of their dwelling stock in owner occupation while a further five have less than 60 per cent of dwellings in this form of tenure 78
Figure 18: Ireland has the youngest dwelling stock in the European Union 82
Figure 19: The European house price ‘hot spots’ in recent years have been the Netherlands, Ireland, Spain and the UK 85
Figure 20: In the year to Q1 2003 house prices in Spain and the UK continued to increase rapidly 87
Figure 21: In 2002 mortgage market gross advances in the UK accounted for more than 40 per cent of the European total 89
Figure 22: Balances outstanding in Germany at the end of 2002 were EUR 1068.7 billion, 28.9 per cent of total balances outstanding in Europe 92
Figure 23: In more than ten European countries mortgage balances outstanding are equivalent to less than 50 per cent of GDP 95
Figure 24: In the seven EU counties for which data is available more than 3.1 million mortgage loans were advanced in 2002 97
Figure 25: Variable rate mortgage products are more popular in the UK than anywhere else in Europe. In contrast, in Germany long-term fixed rate products are the most common type of mortgage product 100
Figure 26: In contrast to most other economies in Europe, the UK has both a high penetration of variable rate mortgage loans and high mortgage balances outstanding relative to GDP 104
Figure 27: Using retail deposits is the most common way to fund mortgage lending in Europe 106
Figure 28: Explanation of the risk associated with the use of retail deposits to fund fixed rate mortgage lending 107
Figure 29: Germany accounts for more than 40 per cent of balances outstanding on mortgage bonds in Europe 108
Figure 30: According to the CML’s Annual Housing Finance Survey 2002, 79 per cent of mortgage holders in the UK arranged their current mortgage in a branch 117
Figure 31: Bank branch networks will continue to contract in the years to 2005 albeit not by as much as previously thought 118
Figure 32: Retail banking in France accounts for only 13 per cent of Crédit Agricole’s total number of employees 127
Figure 33: Crédit Agricole and the other four largest lenders in France hold more than 77 per cent of the French mortgage market 129
Figure 34: Mortgage lending is by far the most important type of lending engaged in by Crédit Agricole 131
Figure 35: A SWOT analysis of Crédit Agricole 135
Figure 36: Gross advances in the French mortgage market will increase at a compound annual growth rate of 2.9 per cent between 2003 and 2007 and amount to EUR 52.9 billion by the end of the period 137
Figure 37: BHW is the second largest Bausparkasse in Germany in 2002 based on new Bauspar savings deposits. However, it is some way behind BSH 150
Figure 38: Almost half of BHW’s residential lending book is now in the form of mortgage loans rather than in Bauspar loans 154
Figure 39: A SWOT analysis of BHW 156
Figure 40: Gross advances in the German mortgage market will increase at a compound annual growth rate of 1.1 per cent between 2003 and 2007 and amount to EUR 76.0 billion by the end of the period 158
Figure 41: The rapid increase in Irish house prices is reflected in the increasing percentage of Irish housing that is valued at more than EUR 200,000 163
Figure 42: The history of First Active in Ireland and the UK 170
Figure 43: First Active and the other four largest mortgage lenders in Ireland have a combined 77.1 per cent share of the Irish mortgage market 172
Figure 44: The contribution of residential lending to First Active’s loan book increased slightly between 2001 and 2002 174
Figure 45: A SWOT analysis of First Active 178
Figure 46: Gross advances in the Irish mortgage market will increase at a compound annual growth rate of 8.1 per cent between 2003 and 2007 and amount to EUR 18.2 billion by the end of the period 180
Figure 47: The size of the Italian owner occupied sector has increased by six per cent in under ten years to account for 80 per cent of dwellings in 2002 185
Figure 48: Banca Woolwich’s branch network is dwarfed by networks belonging to its larger competitors 187
Figure 49: With the exception of a slight dip in new business in 2002, Banca Woolwich has grown impressively over the last five years, 1998-2002 188
Figure 50: The top five lenders have a combined 42.7 per cent share of the Italian mortgage market. Banca Woolwich holds an additional 3.1 per cent share 190
Figure 51: 80 per cent of Banca Woolwich’s mortgage customers are introduced by its partners and intermediaries. Of these, Gabetti is by far the most significant 193
Figure 52: A SWOT analysis of Banca Woolwich 195
Figure 53: Gross advances in the Italian mortgage market will increase at a compound annual growth rate of 8.3 per cent between 2003 and 2007 and amount to EUR 78.6 billion by the end of the period 197
Figure 54: Dutch property price increases have slowed over the last two years 202
Figure 55: At the end of the first half of 2003 Rabobank’s total assets stood at more than EUR 400 billion 206
Figure 56: Rabobank has decreased its number of member banks despite a more than 100 per cent increase in its number of members 208
Figure 57: A SWOT analysis of Rabobank 213
Figure 58: Gross advances in the Dutch mortgage market will increase at a compound annual growth rate of 5.0 per cent between 2003 and 2007 and amount to EUR 127.9 billion by the end of the period 215
Figure 59: A low nominal mortgage rate and a relatively high rate of inflation combine to produce a low real mortgage rate in Spain 221
Figure 60: Banco Popular has grown its distribution network and increased its headcount over the last five years 225
Figure 61: Banco Popular and the other four largest lenders in Spain hold a combined 32.9 per cent share of the Spanish mortgage market 227
Figure 62: Boosted by the acquisition of the remaining share of Banco Popular Hipotecario (BPH), Banco Popular’s total loans and discounts during 2002 surpassed EUR 34 billion 229
Figure 63: Banco Popular has spread its lending across Spain thus minimizing its vulnerability to any regional fluctuation in the property market 230
Figure 64: A SWOT analysis of Banco Popular 233
Figure 65: Gross advances in the Spanish mortgage market will increase at a compound annual growth rate of 9.6 per cent between 2003 and 2007 and amount to EUR 112.1 billion by the end of the period 235
Figure 66: Though increasing the number of dwellings built per year in Sweden remains low 240
Figure 67: Significantly decreased staffing costs have contributed to stronger operating profit at Spintab 245
Figure 68: Spintab has a 30.1 per cent share of total lending by mortgage credit institutions in 2002 247
Figure 69: A SWOT analysis of Spintab 250
Figure 70: Gross advances in the Swedish mortgage market will increase at a compound annual growth of 3.3 per cent between 2003 and 2007 and amount to EUR 28.1 billion by the end of the period 253
Figure 71: UK house price increases have stabilized in 2003 although they remain fairly strong 260
Figure 72: Northern Rock is a great deal smaller than the big UK high street banks in terms of consolidated total assets, 2002 267
Figure 73: The top five lenders in the UK mortgage market have a combined 60.4 per cent market share. Northern Rock has a 4.5 per cent share 269
Figure 74: Northern Rock has grown faster than larger lenders in the UK mortgage market 271
Figure 75: Compared to the top five competitors in the UK mortgage market, Northern Rock’s cost to income ratio is exceptionally low, 2001-2002 275
Figure 76: In 2003 Northern Rock is fifth most commonly recommended mortgage lender by intermediaries having been third most commonly recommended in 2002 276
Figure 77: A SWOT analysis of Northern Rock 279
Figure 78: Gross advances in the UK mortgage market will increase at a compound annual growth rate of 6.9 per cent between 2003 and 2007 and will amount to EUR 520.5 billion in 2007 281
Figure 79: Over the next five years the UK will remain the largest mortgage market in Europe judged in terms of gross advances. However, it will no longer be the fastest growing 284
Figure 80: The research methodology used to produce European Mortgages 2003 305