2019 was a record year in nearly all respects for the Belgian mortgage market, with a total of €42 billion in real estate loans, excluding refinancing arrangements. An analysis by BNP Paribas Fortis, which finances a quarter of all home purchases in this country, attributes the current powerful attraction of bricks and mortar to a combination of low interest rates, relatively poor returns on alternative investments, and the desire of many Belgians to buy their own home or even own several properties.
As the annual Batibouw Fair prepares to open its doors this month, BNP Paribas Fortis, the leading provider of mortgage lending in Belgium, has just published its traditional annual report on the state of the bricks-and-mortar market in this country.
The first observation is that all records have been tumbling on the Belgian real estate market. Figures compiled by Belgian banking sector federation Febelfin show mortgage lending totalling €42 billion in 2019, thus maintaining a continuous rise over the past six years. Meanwhile, according to the Belgian Notaries’ Survey, these past twelve months have been a record year for the real estate business, with an 8.9% rise in property transactions compared with 2018.
Business boosted by the abolition of the woonbonus in Flanders
“2019 can be regarded as a vintage year!” underlines Marc Delforge, Head of Mortgage Lending at BNP Paribas Fortis, explaining: “A number of strong trends provided a boost to the mortgage market, among which we can point to the decision to abolish the ‘woonbonus’ (housing bonus) in Flanders, which prompted an unprecedented rush among the Flemish population to purchase real estate during the last quarter.”
Accordingly, the announcement that the housing bonus was to be scrapped led to a sharp rise in the number of mortgages taken out during the last three months of the year in the north of the country. The number of home loans granted by BNP Paribas Fortis in Flanders rose by close to 80% during the fourth quarter of 2019, and by over 190% in the last month, compared with the same periods in 2018.
A second key observation is that in 2019 the Bank saw a fresh upturn in requests for refinancing, which rose by 57%. However, excluding refinancing, more than half (55%) of all BNP Paribas Fortis customers who took out a mortgage did so in order to buy a home. The total amount borrowed for home purchases also attained a historic high, increasing from €199,000 in 2018 to over €207,000 in 2019, a 4% rise. At the same time, the average loan, for all purposes across the board, stabilised at €167,000 in 2019.
As during the previous year, one in three borrowers opted for a variable interest rate. Back in 2017, variable-rate loans plateaued at 15% of total home loans. As regards loan maturities, the low level of interest rates in recent years has led to the average loan duration rising year-on-year by seven months to 234 months. The average monthly repayment last year came to €833, compared with €840 in 2018.
BNP Paribas Fortis supports the energy transition at residential properties
BNP Paribas Fortis has seen the number of mortgage loan applications for environmentally-friendly construction or for improving energy economy at existing homes rising steadily over the past few months.
BNP Paribas Fortis already offers clients ‘renovation loans’ and also ‘energy loans’ for which customers are accorded preferential interest rates and may borrow up to 130% of the cost of the work required to make energy-related improvements such as the installation of photovoltaic panels, water saving systems and heat pumps.
Last year, the average amount borrowed under a ‘green’ loan for renovation purposes rose to €126,000, compared with €98,000 the previous year – a 28% increase – while the average ‘traditional’ renovation loan worked out at €69,500. Currently, one in three renovation loans granted is an energy loan.
“We place strong emphasis on energy transition at residential buildings because it’s vital to increase energy savings and reduce the amount of greenhouse gases emitted by dwellings”, underlined Koen Dugardin, Head of Product Management Lending, Protect & Pricing at BNP Paribas Fortis, pointing out: “BNP Paribas Fortis is a major player in renovation loans, providing one in three of all such loans in Belgium, and we’re fully committed to providing financing solutions to help customers improve energy efficiency at residential property.”
Three profiles, three different trends
Real estate-related business at BNP Paribas Fortis in 2019 was characterised by a number of distinct borrower profiles. The under-30 age group accounted for a quarter of all mortgages; people aged 55 and over took out less than one mortgage loan in ten; while households with only one income accounted for a third of all mortgage loans granted.
Notable trends are that young people under 30 continue to take advantage of the low interest rates in order to become home owners; this category of BNP Paribas Fortis mortgage loans rose by 29% year-on-year.
It is worth pointing out that 61% of mortgage borrowers under 30 years of age purchased an older property, while 18% opted for a new-build home. The average amount borrowed by members of this ‘millennial’ generation for real estate purchases came to €217,600, a slight increase (+4%) on the previous year, while the average loan taken out – for all purposes across the board – by this age group also rose by 4% between 2018 and 2019, to reach €194,400. It is also noteworthy that these younger homebuyers, who tend to have more limited financial resources, borrowed on average 86% of the real estate value (1% less than in 2018), a higher loan-to-value quotient than the 76% average among all mortgage borrowers.
Baby-boomers keen on renovation and construction
Large numbers of customers aged under 30 moved to take advantage of the low interest rates, and the over-55s were also quite active on the real estate market last year: mortgage loans granted to this category of borrower rose by 10% compared to the previous year.
The main purposes for which these ‘baby-boomer’ customers took out mortgages in 2019 were real estate purchases (47%), renovation (25%) and construction (24%). Aggregating all purposes, baby-boomers borrowed on average €160,600, with an average loan-to-value ratio of 48%, i.e. down 10% year-on-year. Meanwhile the average maturity of mortgages granted to this age group worked out at 120 months (one month longer than in 2018), little more than half the average maturity (234 months) among all BNP Paribas Fortis customers.
Single people and single-parent families borrow a high proportion of property value
One notable social phenomenon in Belgium is that the number of single-parent families has been rising steadily in recent years. According to estimates published by the King Baudouin Foundation, one family in five in the country today has only one parent. In line with this trend, large numbers of single people and single-parent families are nowadays applying for mortgage loans based on just one salary.
Accordingly, customers living on only one income also took advantage of the low interest rates to become home-owners in 2019. Close to 30% of all mortgage loans provided by BNP Paribas Fortis were taken out by borrowers in this category, a 15% rise year-on-year.
In this category, the average amount borrowed in order to purchase a home was €174,500, i.e. €50,000 less than the average loan granted to a couple. Taking all mortgage loans together, the average monthly repayment made by a single person was €762, compared with €864 for households with two incomes. It is noteworthy that on average single borrowers borrowed 71% of the value of the purchased property, far below the 90% generally allowed in the ‘first-time buyer’ segment.
Will the market stabilise in 2020?
BNP Paribas Fortis sees it as unlikely that interest rates will fall further in the next 12 months. “We think that it’s still too early to foresee any trend towards higher interest rates in 2020,” stated Koen Dugardin, adding: “However, we’re expecting all market segments in all regions to stabilise. This lukewarm environment is due to uncertainty regarding economic growth, the real estate tax situation in the regions, plus the impact of abolishing the housing bonus in Flanders, and lastly because of the new rules governing the loan-to-value quotient which the National Bank of Belgium has drawn up in order to regulate access to loans more tightly. On the other hand, there will still be a number of aspects providing support to the real estate market in 2020, such as the fact that we are still in what is known as a ‘TINA’ situation – i.e. There Is No Alternative – as the interest rates on savings and bonds offer very low returns, and due to Central Banks’ accommodating monetary policy as regards borrowing. So there are as many positive as negative factors impacting the Belgian housing market, which prompts us to conclude that the real estate business is likely to be stable overall and that price rises will slow down in the short term.”