Which countries have the highest proportion of mortgage-free households?
Your international property and economics update tracking, analysing and forecasting trends from around the world.
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Interest rates
As we approach the end of the year and with announcement of rate rises coming thick and fast, it seems the one question on both economists’ and homeowners’ minds is, just how high will central banks go? For global property markets the outcome will have a direct impact on mortgages costs, buyer sentiment and as a result sales volumes.
But rate hikes also strengthen currencies and with central banks moving at different speeds this will influence cross border flows.
The latest forecasts from Capital Economics shows the US is expected to lead the charge topping out at 5.00 in mid-2023 before returning to around 4.00-4.25 by year-end.
Rates in the Eurozone are comparatively low for now but may hit 3% in 2023 potentially eroding the currency discounts we’ve observed for USD-denominated buyers buying in the Eurozone this year.
For Switzerland and Japan it looks set to be business as normal with no hikes envisaged at this stage.
Restrictions on foreign buyers in Switzerland however may limit the plans of any overseas property investors looking to capitalise on its comparatively low rates. Japan, however, where no restrictions on foreign ownership exist, may attract more interest.
Homeowners in the US and UK may take some solace from my colleague Flora Harley who has crunched the numbers to gauge that the average time spent at peak interest rates in the US and UK is only eight and five months respectively.
Equity rich
Which country has the highest proportion of mortgage-free households? With interest rates at a 10, or even 20-year high across some advanced economies, I’ve taken a look at which markets have the highest proportion of households that own their homes outright.
These equity rich homeowners will be largely immune to rate hikes unless they are looking to upsize or hold other leveraged assets, and this may add to the resilience of their country’s housing markets.
The latest OECD data reveals Central and Eastern European households are amongst the least leveraged. In Romania, Croatia, Lithuania and Bulgaria over 80% of homes are owned outright.
At the other end of the rankings the Nordics, Netherlands and Switzerland feature, here fewer than 22% of homes are owned outright. With non-residents only permitted to rent, not buy in Switzerland, it may explain why home ownership rates, both with and without a mortgage, are significantly low.
The UK sits mid-table with 39% of properties owned without a mortgage. By comparison, housing markets in the US and Germany are more exposed to tighter monetary policy with only 26% of homes owned outright in both cases.
Policy changes
After a quiet 2022, the final quarter has seen a flurry of new regulations from national and local authorities keen to boost affordable housing by introducing new wealth or property taxes.
Los Angeles approved a new mansion tax for homes priced above US$5 million on 6 December. Funds generated will boost the city’s affordable housing provision. The new tax will come into force on 1 April 2023.
The measure, known as Proposition ULA, boosts the one-time transfer tax to 4% for property deals between US$5 million and US$10 million, and 5.5% for transactions of US$10 million and above. The current rate on all sales is 0.45%.
Spain introduces a new temporary solidarity tax. The country already has a wealth tax, but its effect has been heavily diluted in some regions because the regional governments have powers to vary the rates, allowances and reductions. The new solidarity tax will be a national tax lasting for two tax years under the authority of central government. It will apply at the same rate throughout all of Spain and the autonomous regions will not be able to modify it with credits or allowances. The tax will apply to all Spanish residents with assets of €3 million or more.
And announced earlier this year:
New South Wales increases land tax surcharge on all residential land owned by a foreign person from 2% to 4%. The new rates start from 1 January 2023.
Canada’s two-year foreign buyer ban will come into force on 1 January 2023. The Act prohibits non-citizens and non-permanent residents from purchasing residential property in Canada for two years. The Act also restricts non-Canadians from avoiding the ban by using corporations or other entities to purchase residential property.
New York’s short lets
New York’s authorities are clamping down on holiday lets. From 9 January 2023 properties let for fewer than 30 consecutive days will be subject to new rules. Hosts will be required to register their listed homes and apartments with the city’s Office of Special Enforcement and obtain a registration number. Failure to comply means a penalty of up to US$5,000.
The aim is to tackle illegal rentals and improve the city’s affordable housing.
Booking services such as Airbnb and Vrbo will be required to verify the short-term rental registration number of a property before listing it.
Under the new Local Law 18 the underlying rules governing short-term rentals for different property types remains unchanged. For example, in buildings with three or more units, it remains illegal to rent a property for fewer than 30 days if the owner or leaseholder is not present during the entire rental period.
In other news…
Hong Kong drops curbs on incoming travellers and scraps Covid App (South China Morning Post), China’s property bailout leaves most out in the cold (Reuters) and the impact of the housing market slowdown on the short-term rental market (Wall Street Journal).