“Covered bond issuance will remain relatively stable in 2026, below record volumes but with no material decline,” said Mathias Pleissner, Deputy Head of Covered Bonds. “This will be supported by credit growth although volumes will be exposed on the downside to a volatile geopolitical, macroeconomic and political environment.”

“In terms of the outlook for residential mortgage underlyings, we expect modest real gains in EU house prices, broadly tracking inflation amid soft macro conditions” Pleissner continued. “The long-term investment case remains intact for most markets; the short-term investment proposition is more mixed.

“Some markets retain catch-up potential after prior corrections. Greek house prices have continued to increase, for instance, but growth has started to slow due to moderate GDP growth and muted growth in mortgage credit. Austrian property prices remain under pressure as domestic growth remains weak and supply overhangs persist.”

House-price corrections in 2024 and 2025 reduced supervisory appetite for more borrower-based macroprudential measures, although a few countries did amend measures. Austria moved to flexible, non-binding mortgage lending guidelines that give banks more discretion, while Norway kept binding rules but eased stress tests and debt checks. Germany and Spain continue to be outliers: neither country has ever introduced formal borrower-based measures.

“On regulatory matters, specifically the European Banking Authority’s advice to the Commission on the review of the EU covered bond framework, a push for more harmonisation on coverage tests and liquidity safeguards, as well as third-country equivalence are in the spotlight,” said Karlo Fuchs, Head of Covered Bonds.

Only eight EU member states apply NPV coverage tests, for example, which capture interest and maturity mismatches and excess spread. ”Harmonisation of NPV usage across the EU would strengthen investor protection. On property valuations. replacing market values with lending values, consistent with the Capital Requirements Regulation, could lead to more exceptions to the minimum 5% over-collateralisation rule,” Fuchs said.

When it comes to third-country equivalence, we would expect a sound, resolution framework like the Bank Recovery and Resolution Directive to become a key assessment pillar. The EBA’s advice remained silent on this, but without alignment, investor protection is not fully comparable to European covered bonds.

Download the Covered Bonds Outlook deck here.

Webinar
And join us for a webinar on Thursday 29 January at 15:00 CET when Mathias Pleissner and Karlo Fuchs will discuss each of the core underlying elements relevant to covered bonds, including a perspective on macroprudential activity and regulatory topics. They will also be happy to take questions.

Register here.