Rising interest rates halt Europe's booming housing markets - RICS

The majority of housing markets in Europe slowed sharply or slid backwards during the second half of 2007 in response to inflation-induced interest rate rises, according to the research report European Housing Review 2008 commissioned by RICS. According to the report, the prime cause has been the general rise in mortgage interest rates over the past 18 months. The knock-on effect of European Central Bank interest rate policies and general rises in interest rates have led to the noticeable slowing of Europe's housing markets.

The recent credit crunch is yet to have significant impact, with household lending remaining fluid across the majority of Europe. However, the UK is one of the few countries to experience noticeable drops in borrowing levels. Cyprus (15%) and Iceland (15%) were the only countries in which house prices outstripped their 2006 growth. Ireland was one of the worst-performing markets, with house prices falling at an estimated 7%. The Baltic States were also hit hard, with early year prices rises wiped out from summer onwards.

Poland recorded the highest rate of price increases (28%), however the reality of post-summer market conditions offered a sharp wake-up call. Oversupply issues have arisen due to an overhang of unsold property and the swift shift made by foreign investors' from 'buy' to 'sell'. Germany's economy may have turned a corner but this is yet to be mirrored in its housing market. Meanwhile, the slowdown in the French economy has hit its housing sector, with Belgium, the Netherlands and Scandanavia also experiencing similar 'quieting'.

Interest rates have also had a strong impact on the Spanish market with house price growth slowing to 3%. A more significant market decline is foreseen in 2008. 'There are prospects for some house price falls during 2008 but the scale of any housing market downturn is likely to be far less than the last downturn in the early 1990s', said Michael Ball, the report's author.