“According to the Commission's estimates, the overvaluation of housing prices has increased to around 30%, reflecting the strong nominal growth in housing prices over the last year”, the document reads. For Brussels, this scenario reflects a “negative impact on housing accessibility, especially for vulnerable groups”, in addition to the increased burden with housing costs.

However despite the “strong increase” in housing prices and the estimated overvaluation in recent years, “a large part of cross-border investment in housing mitigates internal risks”.

“Over the years, much of the financing related to the purchase of properties have been linked to foreign direct investment or the commercialisation of residential properties within the scope of expanding tourism. As a result, part of the strong increase in housing prices was not driven by internal factors and is not associated with domestic debt”, highlights the organisation.

The Commission expects house price growth to moderate in the short term, with a sharp decline in house valuations being “unlikely”.

“Interest rates remain high, despite recent signs of a slight easing of financing conditions. The expected increase in real household income should partially offset the impact of interest costs on housing affordability, together with government measures adopted to support vulnerable families”.

Another risk identified concerns the “high exposure” of families to variable interest rates, which “substantially” increases interest charges. According to the European Commission, “housing loans represent almost 80% of the total volume of bank loans to households”.

“The cost of financing for new home loans has increased from a historic low of 0.8% in early 2022 to above 4% in early 2024. Despite the sharp decline in the proportion of mortgages with variable interest rates ​ ​​​In recent years, the majority of mortgages continue with either variable interest rates or mixed rates, generally with a fixed rate for a period of one to five years, then switching to a variable rate”.