Property prices in Greece are expected to fall by 15% over the next two years, according to a report by Fitch Ratings. The credit-rating agency reported that higher interbank rates and fiscal-consolidation measures would raise the percentage of borrowers who would be unable to repay their mortgage loans. ‘It seems that a rising number of borrowers delaying payment of their mortgage loans will end up in a higher number of non-performing loans’ Fitch said in the report.

Interest rate rises will make it harder for borrowers, especially those hit by austerity measures (public job cuts), to keep up with their mortgage payments. According to the report, the proportion of loans not paid for more than three months rose to 2.7% in December 2010 from 0.9% a year earlier, leading many to conclude that there will be an increase in repossessions.

Greece’s house-price index has only dropped by -4.3% since its 2008 peak, due to lower interest rates that have been helping homeowners make debt repayments, but rising interest rates will hit homeowners very hard.

Also, a high proportion of Greek mortgagees work in the public sector, which will be seeing substantial job cuts over the next two years as the Greek government attempts to pay down its huge debts, including the €110bn bailout it received from the EU and the IMF last year. The Greek economy shrank by -4.2% last year and unemployment increased to 13.5% in October 2010.