In January 2022, 26% of active mortgage loans were at a variable rate. The most noticeable impact of a rate hike by the ECB was on the average installment of these loans, which increased on average by +36% compared to the lows of mid-2022, with a peak of +49% for mortgages disbursed in the last 5 years. This information comes from an analysis conducted by CRIF on the effects of the increase in mortgage rates.
The main finding from the CRIF analysis is the increase in financial exposure for borrowers, despite making 24 installments between January 2022 and December 2023. The analysis also shows that the growth in interest rates led to a +25% increase in the overall debt levels of those with variable rate mortgages over the last 5 years.
Despite the rise in interest rates, those with adjustable rate mortgages did not show an increase in insolvency rates. However, there was an increase in financial tension, as shown by CRIF’s financial tension index, which indicates higher levels of indebtedness and a risk of failure among borrowers with variable rate mortgages.
Simone Capecchi, Executive Director of CRIF, commented on the impact of interest rate dynamics on variable rate borrowers in the last two years. While there has not been a significant increase in insolvency rates, there has been a notable rise in financial stress. The potential for a rate cut in June 2024 could provide relief for borrowers and help stabilize their financial situations.
In light of the current macroeconomic and geopolitical uncertainties, it is important to remain vigilant and prepared to face the challenges that may arise in the future.