Economy becomes top worry for EU mortgage lenders

By Huw Jones

BRUSSELS, Nov 20 (Reuters) - There is no end in sight to problems in Europe's 6 trillion euro home loans market but countries with conservative lending policies are riding the storm relatively well, top industry officials said on Thursday.

Big booms in housing markets in European Union states like Britain, Ireland and Spain have burst spectacularly but Germany, the Netherlands, Belgium and Denmark are relatively stable.

After 10 years of growth, Europe's mortgage market has slowed as the worst financial turmoil in 80 years has begun making loans harder to come by.

But recession in the euro zone and Britain is now becoming a bigger dampener on the market and more interest rate cuts would help stabilise the situation, officials said.

Michael Coogan, director general of Britain's Council of Mortgage Lenders said third quarter figures due out on Friday will show arrears on UK home loans were the worst this century.

"We may well be facing transaction numbers across the UK at the lowest level since World War Two. The turmoil will continue for much of the next 12 months," Coogan told a European Mortgage Federation conference.

Coogan said that in the last quarter in Britain demand for loans was shrinking faster than supply due to economic slowdown.

Other officials were equally gloomy.

"I don't know when this crisis will be over. We are now in a phase where we see a correction of huge imbalances in the global economy and that is the real thing that is happening," Bernhard Scholz, a board member of Germany's Hypothekenbank, said of the European market.

Germany saw no boom in private housing and won't see a big bust and there was no shortage of funds for loans, Scholz said.

"We don't see any credit crunch in the private housing sector and we don't expect any but demand has slowed. We are expecting a recessionary time in the next few months," he said.

It was also unclear what would be a sustainable business model for the industry in future, Scholz said.

Still, conservative lending policies in the Netherlands, Denmark and Belgium have shielded them from major problems.

Peter Engberg Jensen, chief executive of Denmark's financial services group Nykredit did not expect a need for state intervention to guarantee the country's mortgage banks.

Each Danish home loan is "perfectly matched" with funds issued at precisely the same maturity, interest rate and currency but a slowing economy was a concern, Jensen said.

The EMF expects Europe's home loans market to be roughly flat this year.

A Dutch industry code on lending has avoided excesses and could serve as a model for Europe in anticipation of likely EU regulation, said Wim Mijs, managing director of the Netherlands Bankers Association. It lays down the maximum amount of money that can be borrowed depending on income and interest rates.

Freddy Van den Spiegel, chief economist at Belgian-Dutch Fortis bank, said the Belgian market was "doing quite well" due to its conservative lending policy but borrowers were switching from flexible rates to more fixed rates and longer maturities.

"We don't yet see a decrease in demand. If the economic situation continues to deteriorate it will be demand shock rather than a supply shock," Van den Spiegel said.

Other countries were applying lessons learnt.

Zbigniew Krysiak of the Polish Banks Association said changes introduced included a minimum down payment of 30 percent compared with nothing in some cases in the past. Up to 75 percent of loan applications in Poland were now rejected.

Officials urged regulators to be cautious.

"It can be extremely dangerous to try to overregulate right now. It could reduce macro economic growth even more," said Nykredit's Jensen.

(Reporting by Huw Jones, editing by Stephen Nisbet)