Moody’s warns of risks from looser mortgage rules in Europe
Credit ratings agency Moody’s warned that the roll-out of looser mortgage rules across several European countries, including the UK, Switzerland, and Nordic nations, could increase the risk of loan defaults and negatively impact lenders’ credit profiles over the long term.
In a report shared with Reuters on Tuesday, Moody’s highlighted that regulators in six countries—Britain, Switzerland, the Netherlands, Norway, Sweden, and Finland—have eased mortgage lending limits since 2022 to stimulate housing markets and support economic growth.
Measures include Finland and Norway raising the loan-to-value cap on residential mortgages from 85 per cent to 90 per cent, while the UK has relaxed stress test requirements for home loans and is considering further rule changes to align with pro-growth policies.
Moody’s noted that while these changes may support house prices in the short term, they could lead to higher default risks and mortgage losses over time, posing long-term risks to lenders and mortgage-backed securities.
The easing of mortgage rules marks a shift from the tighter regulations imposed after the 2007-2009 global financial crisis, which saw soaring default rates threaten banks’ stability.
However, Moody’s said the risks are partly offset by improved lending standards and stronger capital buffers at European banks. The agency also noted that relaxed rules may not necessarily lead to increased mortgage lending, as banks maintain their own underwriting criteria and risk appetite.
Attribution: Reuters
Subediting: Y.Yasser