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Increase in Mortgage Borrowing Boosts Eurozone Markets

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By - Thursday 05 August 2010

Figures released by the European Central Bank (ECB) at the end of last month (July) have shown that eurozone mortgage borrowing grew during June at its fastest pace in almost two years.

The statistics would suggest that bank lending across the 16 member states is coming back to life, which is sure to be a boost for the region's property markets. In June, lending for house purchases rose by 3.4 per cent compared to the same period a year previously - which was the fastest growth since September 2008.

It is thought that this growth signals a revival in consumer confidence within the eurozone and shows an increased willingness on the part of banks to offer private sector loans, thus helping economic recovery.

Indeed, such is the view of Julian Callow, European economist at Barclays Capital, who believes that renewed interest in the housing market has also been bolstered by the austerity measures put in place by a number of governments

"The action of the ECB is really helping to keep down mortgage rates. It ought to be followed by an improvement in corporate lending activity," he explained.

Meanwhile, news that there has been a resurgence in mortgage lending is likely to please property investors in the eurozone, with many previously harbouring fears that the region's banking system was unstable. Before the global economic crises of the past three years, housing markets were overheating in many eurozone countries and mortgage lending peaked in 2006, where annual growth rates exceeded 12 per cent.

However, among the largest countries in the eurozone, such as France, Spain and Italy, there have now emerged clear signs that there has been a revival in lending.

International Property Searches Up

Indeed, the news follows figures released by PrimeLocation which show that international property searches on its housing portal were up 138 per cent year-on-year. The website claims that the increased interest is proof that financial pressures are not dampening real estate investors' interest in overseas purchases.

Ann Wright, the firm's international development manager, commented: "The data, taken in conjunction with the results of the MyHomeLife panel research, indicates the increasing diversity of the international property market, encompassing investment buyers, relocators, semi-permanent movers as well as traditional second-home owners."

"While transactions have not yet recovered fully to return to their pre-crash levels, with finance and buyer caution remaining an issue in many cases, this broad range of different buyers is undoubtedly an important factor in explaining the current stability of the international property market," she added.

Weakness of Euro

It is likely that property in eurozone destinations will be given a further boost thanks to the current weakness of the currency.

Speaking earlier this year to Overseas Property Professional, World First claimed that the economic woes which have been developing over the past few months could make property in the region very attractive for investors.

Following news that, for example, Spain's AAA credit rating was to be downgraded and further threats from the ECB that the eurozone banks could be forced to pay back a further €195 billion in bad loans, the Euro has continued to weaken. "The euro is overvalued at current levels and we will tend to see it move back to its long-term average against the pound and the dollar," Jeremy Cook, chief economist at World First, told the news provider. "We've already seen interest in buying property start to increase … some people have been putting off buying for a year - they have the finance and are all ready to go but want to get the best rate they can."

Indeed, the recent PRUPIM International Real Estate Perspective report confirmed this view.

"The recent devaluation of the Euro is also likely to entice further interest from overseas investors who see large discounts for the properties on offer, compared to a year ago," Anne Koeman, research analyst at the real estate manager, said.

Ms Koeman went on to explain which types of real estate were drawing the most interest from buyers, but warned that not everyone shared the same degree of optimism about the market.

"However, appetite is strongest for prime properties in core locations and there is still noticeable risk aversion in the market. Most investors seem very wary of property investment in south and eastern Europe, even at current high yield levels," she added.ADNFCR-3415-ID-800012878-ADNFCR

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*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.

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