A report by the organisation presided by Christine Lagarde says the same is true for house prices in the UK, Ireland, The Netherlands and Denmark, all of which have also experienced a property value ‘boom and bust’ since the Millennium, and that collectively, the five countries have seen a fall averaging around 25%.
But current analyses of the markets in all five EU member States suggest home values ‘have either reached rock bottom or are about to’, says the FMI.
The report differentiates between the markets in each of the countries, saying the economic crisis, combined with over-building leading to excess supply caused the market to crash much more violently in Spain and the Republic of Ireland than anywhere else, bringing with it a sharper decline in employment and bringing the construction industry to a complete standstill.
Spain and Ireland also saw a much higher level of debt defaults, including bank loans to construction companies and private mortgages which, combined with high unemployment and the impossibility of those affected being able to keep up repayments, has left ‘a private sector debt which is hampering recovery’.
The FMI recognises that all five countries have ‘taken important steps to aid the recovery’ of their housing markets, but ‘new ideas may help to continue and accelerate the process’, including, in Spain’s case, intensifying changes to mortgage laws to allow for the renegotiation of debts and to prevent the debtor from continuing to owe the money once their property has been repossessed.
At present, Spain’s legal framework ‘only offers mortgage defaulters a partial release – from 20% to 35% – after having paid off a considerable part of the outstanding mortgage, between 65% and 80%, in just five or 10 years’, says the FMI.
The report calls for the Spanish government to take the steps recommended by the European Commission in March last year, which involved a so-called ‘fresh start system’ after three years of payment.
Although this system was mainly set up to help new companies, the FMI believes it would also be workable for individuals.
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