There are clear signs of stabilization in nonperforming loans (NPLs) in the European Union (EU) after the short-term rises seen from 3Q08 to 3Q09, according to the European Mortgage Federation’s (EMF) updated study.

Except for Hungary, loans that been in arrears for over three months do not comprise more than 3% of total outstanding mortgage loans in member states at the end of last year. 

The NPL increase, arrears, doubtful loans and repossessions, experienced in some EU markets since the beginning of the crisis in Q3 2008 has slowed down in most member states.  

“A moderate but continued economic recovery, boosted by a very low interest rate environment in response to accommodative monetary policies, contributed to the stabilising of housing and mortgage cycles which we now see," said Alessandro Sciamarelli, head of statistics, in idenitifying the root of the improved NPL environment. "In addition, forbearance programs agreed by government and banks helped to ensure that foreclosure remains ‘the very last resort’, as the process involves high costs not only for the lender but also the borrower.” 

EMF's study also highlighted that in a long-term context, NPL levels after end of 2009 were still considerably lower versus those that were recorded in most EU countries over the previous housing recession in early 1990s.

A varying macroeconomic scenario characterized the previous recession in terms of the higher mortgage interest rates, which was based on a much more restrictive interest rate environment across the EU during that time. There were also other factors such as the higher unemployment rates and the fact that there was no monetary policy reaction since Central Banks could not lower their policy interest rates during high inflation.

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