This is not the first time that NBB has expressed its concerns. The real estate market remains strong. However, a new recession could leave some families unable to pay off their mortgages leaving the banks vulnerable.
More than a third of all mortgages were for more than 90% of the purchase price of the property. This reflects a trend of people lending (and being able to lend) an ever greater percentage of the purchase price of their home.
Furthermore the proportion of net monthly income that goes towards paying the mortgage is also on the up. One quarter of new mortgages involve the lender giving over more than half of their monthly income to pay off their loan. Meanwhile; around one third of mortgages are for periods in excess of 20 years. Those spreding their mortages over longer periods are often the most vulnerable if the economy takes a downturn. Depending of the severity of the recession and its influence on property prices a lender could end up not only being forced to sell their home, but also being saddled with negative equity. If lenders default on their mortgages in numbers this will also have an adverse effect on the banks. .
Furthermore, stiff competition means that bank’s profit margins have been cut right back.
Karel Van Eetvelt of the banking federation Febelfin agrees that the number of “risky” loans has increased in recent years. Mr Van Eetveld told VRT Radio 1 that the big danger is that the banks hardly have any profit margin on the mortgages. Mr Van Eetvelt believes that it is up to the National Bank of Belgium to act as he believes self-regulation won’t work here.