Total debts higher than the annual income: home loans the driving factor

The debts of the Belgian families are greater than their combined annual income after tax. At the end of the third quarter of 2015, the National Bank has already recorded a debt ratio of 100.6 percent. With the continuing growth in home loans, this percentage has now risen slightly further. The current figure above 100 percent is in sharp contrast with the historical development of the debt ratio for families. This was only just above 60 percent in 2003, and therefore far below the eurozone average. According to Geert Noels, economist at Econopolis, the figures start to contradict that we are big savers. Belgium is drifting further away from the average debt ratio in the eurozone, which has fallen by around 3 percent since 2010 to 96 percent.

Increasing mortgage costs

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Although alarming, the strong evolution of the last decade is not alarming, says Noels. This is due to the build-up of debts. The majority of loans taken out by households are home loans that, generally accepted, are of a sustainable nature. The housing bonus from the government and the falling interest rates have made mortgage loans very attractive, and due to the sharp rise in house prices, the loan amounts have also increased explosively.

The total volume of mortgage loans currently stands at around $ 200 billion, accounting for more than 80 percent of all loans that Belgian households have outstanding. Only one fifth of the debts stem from a consumer credit (personal loan, cash reserve, credit card, etc.) The National Bank therefore concludes that the financial position of households ‘remains overall robust’

Housing prices continue to rise: a possible bubble?

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The exaggerated credit growth could eventually fuel a bubble in the housing market, experts warn. Despite the slimming down of the housing bonus as of January 1, 2015, more houses were sold in the past year. The activity index of the notaries shows a volume increase of 6.4 percent in the number of transactions in 2015. The average prices for homes also increased in the past year.

In Belgium, an average of 234,699 dollars was paid for a house, a slight growth of 0.1 percent compared to 2014. The average price for an apartment was 205.148 dollars (+ 1.9%). As long as home prices continue to rise, the number of mortgage loans will most likely continue to increase.

A house is nowadays, in addition to a shelter, also an investment alternative

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The NBB is keeping its finger on the pulse, but does not yet seem to see any need for drastic measures to curb the growth in the number of home loans. The percentage of defaults is still low. To compensate families who spend a significant part of their income on paying off a mortgage debt in the event of possible shocks on the credit market, the National Bank has now created additional capital buffers.

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