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RPT-Fitch: Sustainable Affordability Supports Stable German RMBS Outlook
February 3, 2014 / 11:24 AM / 4 years ago

RPT-Fitch: Sustainable Affordability Supports Stable German RMBS Outlook

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Feb 3 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings says that despite rising house prices, mortgage affordability in Germany will remain sustainable, supporting our Stable Outlook for RMBS transactions. The debt-to-income (DTI) ratio, which is a measure of affordability, is one of the main factors driving default risk in residential mortgage portfolios. In our RMBS rating methodology an increasing DTI, indicating worsening affordability, could lead to higher defaults.

Aggregate DTI in Germany has been stable over the last few years, with a slight downward tendency. Despite increasing house prices, affordability has remained sustainable, which reflects rising disposable income, Germany’s unemployment at its lowest level since reunification and historically low interest rates (see recently published Global Housing and Mortgage Outlook for more details on observed market trends and our forecasts).

We project house prices to continue increasing in the foreseeable future, due to on-going strong demand boosted by flight to tangible assets triggered by concerns about inflation and the euro crisis, as well as the attractive yield-risk profile of buying a property as opposed to alternative investment opportunities. At the same time, we expect affordability to remain sustainable due to persisting favourable macroeconomic factors mentioned above, which supports our Stable Outlook on German RMBS transactions.

Our expectation of sustainable affordability is further supported by a recent study conducted by LBS, the building and loan association of the German savings banks (Eigenheime fuer die meisten bezahlbar, 9 December 2013). The study determined the average minimum income necessary to obtain a mortgage loan as a percentage of the average income in different regions of Germany. It concludes that in most regions the average income is enough to secure financing of a property purchase. In some parts of eastern Germany, even incomes below the regional average would be sufficient. Exceptions can be observed in certain large cities (eg Munich or Frankfurt am Main) and rural districts (eg Landkreis Starnberg in Bavaria), where above-average income is necessary to obtain a loan.

The continued affordability, together with increased demand for properties as a safe and profitable investment haven, has led to steadily growing mortgage lending. Since 2009, the average yearly increase in new mortgage lending was 7%, according to data of the European Mortgage Federation. We expect lending volumes to continue increasing at a similar pace as observed in the previous years.

However, given the limited property supply and the fairly low propensity to home ownership in Germany, lending is not expected to overheat.

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