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Housing Finance Market Overview
In Austria, housing finance is mainly raised from banks and Bausparkassen, with the Bausparkassen being the leading residential mortgage lenders in the Austrian market, whereby the savings bank group (including their Bausparkassen branch) have the largest market share of the Austrian mortgage market. The mortgage market expanded since 2001 till 2007 quite rapidly. The mortgage debt to GDP ratio increased from 13.7 per cent in 2001 to 23.9 per cent in 2007.
The Market from the Perspective of the Demand Side
In Austria, the usual maximal loan-to-value (LTV) ratio amounts to 70 per cent though Bausparkassen hypothecate up to a LTV ratio of 80 per cent and their loans are usually placed as second lien mortgages to provide favourable conditions for further mortgages needed. According to a central bank study, over 65 per cent of new home loans were issued at variable rates in 2007, though this high level has been falling back to 54 per cent till the end of 2008. Furthermore, a considerable share of the mortgage credits (around 30 per cent in 2008) was denominated in foreign currencies. In the course of the financial crisis the Austrian Financial Market Authority restricted the possibility to raise a foreign currency loan for private households as the Authority assums that private households are usually not able to properly assess the risk inherent to foreign exchange loans. Banks may only offer foreign currency loans if their customer has a steady income in the respective foreign currency
House Price Development
House prices have been quite stable though they were increasing from 2005 to 2007 by 3 to 4 per cent annually. So far, house prices did not decline in the course of the financial crisis.
Special Characteristics of the Market
Austria has a contractual savings system, the Bauspar system which is characterized by low interest rates on loans and a government interest premium paid on savings. It is offered by specialised credit institutions, the Bausparkassen. The government grants an interest premium between 3 to 6 per cent of the amount saved (up to a set maximum). The actual size of the premium is readapted every year according to the interest rates on the Austrian capital markets (2009: 4 per cent, 2010: 3.5 per cent).
Most mortgage lending is still financed through deposits. Outstanding Covered Bonds represented only 6.4 per cent of the outstanding mortgage debt and the securitisation of mortgages played an even smaller role.