Housing affordability remains a concern in major EU cities

House prices have risen at a faster pace than residents' income in many major European cities over recent years, lowering purchasing power but leaving mortgage credit quality undiminished, according to a leading rating agency. 

In a report for its clients, Moody's said Paris, Amsterdam and London are among the least affordable cities, measured by years of disposable income needed to buy a property. 

"In major European cities, house prices have been appreciating since 2012," said Antonio Tena, Senior Analyst at Moody's. "In 2018, prospective buyers needed on average 15 years' worth of disposable income to acquire a property without a mortgage, compared with approximately 12 years in 2005-07."

Affordability in the cities that Moody's examined was more stretched in Paris, Amsterdam and London. In these three cities, an individual would need more than 18 years of average disposable income to acquire an average property.

Borrowers who can afford to buy houses in major cities have stronger credit profiles, supporting the performance of residential mortgage-backed securities (RMBS). Robust eligibility guidelines and lenders' underwriting criteria have led to strong affordability among securitised mortgages.

In all cities, debt-to-income (DTI) ratios have been stable for the last decade Moody’s said. Major cities are economic hubs, attracting workers and others, reducing the risk that housing demand will depreciate and significantly affect real estate prices and RMBS performance, the agency concluded.