This paper reviews developments in mortgage lending in the EU, including the assessment of covered bonds – a major source of finance for mortgages – by rating agencies. Mortgage models in the EU come in many different varieties reflecting that EU legislation allows a diversity of models. The different mortgage models are assessed against four criteria and in a structural context. It is possible to draw some tentative conclusions as to the relative performance of mortgage models

Mortgages are by far the biggest liability on household’s balance sheet and make up a substantial chunk of bank’s lending, in the Euro area more than 30 pct. of lending of the MFIs. In some sense they are an anomaly on banks’ balance sheets or at least an extreme stretch of the maturity transmission of banking. The typical maturity of a mortgage in the EU is 30 years. Stop for a moment and reflect on what has happened over the last 30 years. The fall of the Berlin Wall, the integration of Eastern Europe in the EU, the rise of China, the internet, the shift from stagflation to fears of deflation etc. And in the narrow financial world, the S+L crisis, The Asian crisis, the dot com bubble, the financial crisis and the government debt crisis. Or a very specific development as the disappearance of the market for anything but very short term unsecured inter-bank lending leaving long term contracts dependent on a LIBOR that is set with limited foundation in actual transactions.