Europe’s mortgage market: from pause to (measured) restart

By Koen Vanderhoydonk, CEO at The Connector

After two bruising years of rising rates, the past six months have marked a turning point. On 5 June, the ECB cut all three key policy rates by 25 bps (deposit rate to 2.00%), citing easing inflation - supporting a gradual recovery in credit demand. Banks in the July Euro Area Bank Lending Survey expect credit standards to ease slightly for housing loans into Q3 2025, a noteworthy shift after an extended tightening cycle. Market data from the European Mortgage Federation (EMF) likewise points to recovering activity in early 2025 across several countries as volumes stabilised and began to climb.

What actually changed: four innovation tracks

1) Faster, cleaner underwriting with open banking and AI governance

In the last six months, lenders have accelerated use of transaction-level data to automate affordability and fraud checks, trimming time and cost in origination. Open-banking rails now routinely feed cash-flow analytics into creditworthiness screens; vendors like Tink highlight data-enriched affordability assessments aimed at reducing document friction and misreporting. Supervisors are watching the model risk side closely: the EBA’s Loan Origination & Monitoring Guidelines (still the north star for mortgage creditworthiness) and the June 2025 EBA Risk Assessment reinforce expectations around robust governance, explainability and monitoring as banks scale decision automation.

2) Digital identity, remote closing and straight-through journeys

The EU Digital Identity Wallet moved forward with large-scale pilots over the summer, paving the way for qualified e-signatures and verified attributes to travel across borders and sectors. In mortgage journeys, that enables remote KYC, digital notarisation flows, and secure exchange of signed documents. Banks aren’t waiting: Belgium’s KBC already runs end-to-end online signing for home loans, pushing straight-through processing to levels that earned it Europe-wide CX recognition this summer. Expect wallet-based attributes (identity, income, credentials) to compress cycle times further as pilots turn into country rollouts.

3) Green renovation finance goes mainstream

Policy is doing the heavy lifting here. The revised Energy Performance of Buildings Directive (EPBD) kicked in last year and is now biting: Member States are implementing rules that prioritise energy upgrades, while the EU’s Renovation Wave keeps the long-term target squarely in view. Financial institutions have responded with targeted products—BNP Paribas, for instance, aims to back 400,000 energy-efficient home renovations by 2026—while regional schemes like the Brussels Green Loan offer near-zero-interest financing for households. Consumer demand is aligning: KBC’s February research shows EPC ratings are already decisive for three in four Belgian buyers. The upshot: renovation loans, second-lien “eco-top-ups,” and mortgage-linked green bundles are now a core growth lane, not a niche. 

4) Platforms and distribution: brokers and marketplaces rebound

As rates eased, Europe’s large origination platforms reported a visible pickup. Germany’s Hypoport, a bellwether for broker-driven distribution, posted strong H1/Q2 results on the back of a mortgage rebound—evidence that digitised matchmaking between borrowers and lenders is re-accelerating. Across the continent, lenders are leaning into API-first partnerships (valuation, e-sign, KYC, income verification) to keep fixed costs down while flexing to demand.

Funding, risk and the rulebook: the near-term contours

With origination stirring, attention is turning to funding and consumer protection. The European Commission in June proposed targeted revisions to the securitisation framework (including CRR/LCR/Solvency tweaks), a step that—if finalised—could incrementally improve mortgage funding economics for banks and bank-insurers. Meanwhile, the CJEU clarified in July that borrowers must have a real opportunity to challenge enforcement where unfair terms may be present, underlining the legal risk of aggressive collections in a higher-for-longer arrears environment. Finally, while broader changes to the EU Mortgage Credit Directive remain in discussion and study mode, supervisors are signalling continuity on responsible lending while updating expectations for ESG risk management timelines.

What this means for the next 6–12 months

• Affordability will improve at the margin if policy rates drift lower from June’s cut and banks follow through on slightly easier housing-loan standards. That supports cautious volume growth rather than a boom.

• Digital closings will spread as eID wallets exit pilot phases and more lenders embed qualified e-signatures and verified attributes directly in journeys. Expect shorter times-to-offer and fewer in-branch steps.

• Green loans will scale fastest given EPBD implementation, local incentives, and clear borrower pull (EPC-sensitive pricing and eligibility). Bank-insurers are well placed to bundle cover and renovation finance. 

• Model risk stays on the radar as AI-enabled underwriting matures; banks will need auditable pipelines and bias controls to satisfy LOM and broader supervisory scrutiny.

Summary

Europe’s mortgage market has shifted from stall to slow-throttle restart. The most meaningful innovation of the last six months isn’t a single breakthrough but the compounding of three enablers—policy-driven green demand, maturing digital identity and e-signing, and open-banking-powered credit analytics—arriving just as monetary conditions turn. For lenders and bancassurers, the winners will be those that convert these rails into shorter cycles, cleaner risk data, and renovation-ready products—without losing sight of the evolving consumer-protection perimeter.