Key Post Anyone know anything about mortgage systems in other countries?

Brendan Burgess

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Jim 2007 has written a very interesting account of the system in Switzerland.

It would be useful to get a summary of other systems - which differ from our own.

I suppose bad ones are welcome as well as we could learn from the other countries' mistakes.


The UK and Canada are the same as the Irish system. But if there are any interesting features which are different, it would be interesting to hear about them.

Here are some links worth checking up

International Comparison of Mortgage Product Offerings
Looks at

  • Australia
  • Canada
  • Denmark
  • Germany
  • Ireland
  • Japan
  • Italy
  • Netherlands
  • Spain
  • Switzerland
  • UK
  • US


Mortgage Industry of Denmark
 
[FONT=&quot]From [/FONT]
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International Comparison of Mortgage Product Offerings

Mortgages in most countries are annuity loans with a level payment. Terms typically range between 20 and 40 years. The European Central Bank (ECB) reports that in 2007 the typical maturity in theEuro area was between 20 and 30 years. Longer maturity products exist in several countries — up to 50 years in Spain and France and up to 60 years in Finland, although these loans have a very low marketshare. The maximum maturity granted is often linked to the retirement age. At an extreme, Japan andSwitzerland have 100-year (inter-generational) mortgages. Scanlon et. al. [2009] note that the maximummaturity was shortened in several countries, including France and Spain, during the crisis.[/FONT]
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[FONT=&quot]Interest-only loans are common in a number of countries. Scanlon et. al. [2008] reported that interest-only mortgages were available in at least 10 European countries as well as Australia and Korea. Table 4provides data on the incidence of interest-only mortgages in a number of countries in 2005 and 2009.[/FONT]
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[FONT=&quot]There are several factors in the rising importance of this feature. First are tax benefits. Mortgage interestis fully tax deductible in Denmark, Korea, the Netherlands and Switzerland.[/FONT]
[FONT=&quot]14[/FONT]
[FONT=&quot]Even in countries likethe Australia and the U.K. where there is no deductibility of mortgage interest, there can be a tax angleassociated with interest-only loans. If mortgage repayment comes from a tax-advantaged insuranceor savings account it may be preferable to de-link the mortgage and repayment vehicle. For example,interest on a companion investment or savings account can accumulate free of tax during the term ofthe mortgage.
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[FONT=&quot]A second reason for interest-only mortgages is low interest rates. The repayment of principal accountsfor a higher percentage of the monthly payment when interest rates are low. Thus, borrower ability toreduce mortgage payments through interest-only loans is greatest with low interest rates.Interest-only loans vary across countries.[/FONT]
[FONT=&quot]15[/FONT]
[FONT=&quot]In Denmark, the Netherlands and the U.K., the loan can beinterest only to maturity (maximum 30 years).Switzerland has a unique instrument — the “infinite”mortgage, which does not have a maturity date and can be passed down through generations. Typically,the maximum LTV on an interest-only loan is 65 percent. This loan can be combined with an amortizing [/FONT]
[FONT=&quot]second loan of an additional 15 percent.
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[FONT=&quot]There are a number of different repayment options with interest-only loans. According to Scanlon et. al.[2008] in 2005, 20 percent of U.K. loans and 44 percent of Dutch interest-only loans had no identifiedrepayment vehicle. In these cases it is assumed that the borrower will refinance or pay off the mortgagethrough sale of the house, business or through an inheritance. More commonly there is a companionrepayment vehicle. The dominant instrument in the U.K. through the mid-1990s was the “endowment”mortgage. The borrower took out an interest-only mortgage to term and repaid with the proceeds of alife insurance policy on which she paid premiums throughout the life of the loan. Until 1984, endowmentmortgages enjoyed a tax advantage through interest deductibility on the life insurance premiums.[/FONT]
[FONT=&quot]17[/FONT]
[FONT=&quot]In addition, mortgage interest was tax deductible until the late 1990s. Endowment mortgages remainedpopular until hit by scandals and charges of mis-selling in the late 1990s. Many borrowers were luredinto endowment mortgages by promises of high returns on invested premiums. When those high returnsfailed to materialize, borrowers reached the end of term with insufficient funds to repay the mortgage.
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[FONT=&quot]Despite the problems with U.K. endowment mortgages, interest-only loans with companion savingsvehicles remain popular in the U.K., the Netherlands and Switzerland. In the U.K., the individualsavings account (ISA) mortgage is linked with an account invested tax-free in equities. However, likethe endowment mortgage, there is no guarantee that there will be sufficient funds to fully repay themortgage at term. Investment and pension-linked mortgages are significant in the Netherlands. Accordingto the Netherlands Housing Survey (VROM 2009) approximately 35 percent of Dutch interest-onlymortgages were linked to a savings or investment account.[/FONT]
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[FONT=&quot]“Flexible” mortgages that allow non-constant amortization are quite common outside the United States.
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[FONT=&quot]Flexible mortgages allow borrowers to skip payments or take payment holidays. The flexible mortgagearose in Australia and the U.K. in the 1990s as a measure to deal with payment fluctuations arisingfrom short-term unemployment or variable income. In both countries it has become a common featurewhereby borrowers can underpay, take payment holidays, overpay and borrow back without taking asecond mortgage. The number of missed payments per year is restricted and unpaid interest is capitalized
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[FONT=&quot]A survey of major lenders in the subject countries found flexible mortgage options [/FONT]
[FONT=&quot]available in Canada, France, Germany, the Netherlands and Spain, as well as Australia and the U.K.
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[FONT=&quot]According to the Council of Mortgage Lenders in the U.K. most mortgages there have a flexible option. A more recent and sophisticated variant of the flexible mortgage is the “offset” or “current account” mortgage (Australia, U.K.), which allows the borrower to control mortgage borrowing through a currentaccount. Salary is deposited into the current account, lowering the balance outstanding by the salary [/FONT]
[FONT=&quot]amount. As debits come through on the current account, the balance rises. An attraction of this instrument [/FONT]
[FONT=&quot]is the interest savings that arise from paying down the debt, as interest is charged daily. An offset [/FONT]
[FONT=&quot]mortgage allows the borrower to keep balances on mortgage, savings and current account in separate [/FONT]
[FONT=&quot]accounts but all balances are offset against each other, allowing the possibility of reducing the interest [/FONT]
[FONT=&quot]paid and the mortgage being repaid early. Offset mortgage rates can be fixed or variable and there is a [/FONT]
[FONT=&quot]m a x i mu m LT V.[/FONT]
 
The [broken link removed] produces an excellent annual report with the following contents.

On the 15th of November, the EMF published Hypostat 2011, which is the Federation’s main statistical study encompassing data on recent developments in housing and mortgage markets in Europe and beyond. Hypostat is the result of a collaborative effort by the European Mortgage Federation’s national delegations and external experts.


The publication covers 33 countries – i.e. the EU27, Iceland, Norway, Russia, Turkey, Ukraine and, for the fourth consecutive year, the United States of America, not only a key mortgage market but also the source of the subprime loans crisis that triggered the global credit crisis from Q3 2008.




Please find below an overview of the structure:

  • Analysis
    • Housing and Mortgage Markets in 2011
    • Evolution of housing finance policy in the Russian Federation: ideas, interests, institutions - a historical overview
    • The sustainability of homeownership and the performance of the mortgage market during the economic crisis in the Czech Republic
    • Housing Debt Crisis in Light of a Major Banking Crisis in Iceland: Restructuring of Household Debt in Iceland- an example for other indebted countries?

  • EU27 Country Reports

  • NON-EU Country Reports
    • Iceland
    • Norway
    • Russia
    • Turkey
    • Ukraine
    • United States of America
 
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