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Housing Finance Market Overview
In Japan, housing finance is mainly raised from banks and specialised mortgage institutions. Until 2005, homebuyers could also turn to the Government Housing Loan Corporation (GHLC), a housing finance agency, for getting housing finance; and though it does not provide loans directly anymore it still had as the once largest mortgage provider a share of around 20 per cent on the outstanding mortgage loans in 2007. The Japanese housing finance market has remained quite stable from 2000 till 2007 which is as well reflected in the somehow constant ratio of residential mortgage debt to GDP in the same span of time. The ratio of mortgage debt to GDP fell slightly from 36.7 per cent in 2000 to 36 per cent in 2006.
The Market from the Perspective of the Demand Side
In Japan, the usual maximal loan-to-value ratio amounts to 80 per cent. In 2006, around 15 per cent of the granted loans had a variable interest rate and around 16 per cent an interest rate fixed for the full period. The remaining 69 per cent were loans with fixed interest rates only for a selected time period. An indirect subsidy to the housing market consists in the perception of market participants that the GHLC and its successor, the Japan Housing Finance Agency, enjoy strong implicit government support.
House Price Development
Since 1991 housing prices have been falling in Japan. From 2000 to 2007 house prices were falling with an average annual rate of 3.4 per cent. A slight positive trend in 2007 was undone by the financial crisis in the United States.
Deposits are for the banks one of the main sources of funding for their mortgage market activities. Since 2007 the GHLC has been transformed into an independent administrative agency, the Japan Housing Finance Agency, which focuses on securitisation support as its primary operation. It offers also housing finance insurance to private financial institutions. Yet, the market for mortgage backed securities still has only a small share on the outstanding mortgage debt (in 2007 around 4 per cent).