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Housing Finance Market Overview
In Italy, housing finance is mainly raised from banks, with the Unicredit bank taking the largest market share. The housing finance market has been growing with a fast pace in Italy. The mortgage debt to GDP ratio increased from 9.8 per cent in 2000 to 19.8 per cent in 2007.
The Market from the Perspective of the Demand Side
The loan-to-value ratio (LTV) is capped by prudential regulations at 80%. Yet, the average LTV lies with 50 to 60 per cent clearly below this level. This is due to the conservative lending standards of Italian banks and high average down payments. About 90 per cent of mortgage loans are floating rates, or fixed for only one year; less than 10 per cent of mortgage loans are fixed for ten years or more. A tax rebate of 19 per cent for mortgage interest on the income tax is granted up to a certain limit.
House Price Development
House prices in Italy started to rise steeply in 2000 and have since increased, on average, by 8 per cent till the first half of 2008. Yet, over the second half of 2008 compared to the first half of the year Italian property prices were down one per cent and it is prognosticated that they will continue to fall.
Deposits are for the banks the main source of funding for their mortgage market activities though, in 2007, securitised mortgages were with a share of 16 per cent on the total residential mortgage debt outstanding of importance. Though a law on Covered Bonds was passed in 2005, no Covered Bond deals have occurred until 2008.