The European Central Bank published an ECB Blog analysis arguing that the average interest rate paid on outstanding euro area mortgages is likely to keep rising despite recent policy rate cuts, because much of the mortgage stock reprices only gradually after the 2022-23 tightening cycle. The post concludes that this lag can continue to dampen private consumption via the mortgage cash-flow channel at least until 2030. Using household-level data from the ECB’s Consumer Expectations Survey and microsimulations, the authors estimate that around a quarter of euro area mortgages are pure adjustable-rate mortgages (ARMs), while most are fixed-rate mortgages (FRMs) that will only transmit rate changes when their fixation period ends. Around 10% of all mortgages are FRMs expected to reset to higher rates within the next three years, with a further 20% by 2030. Mortgage structures differ across countries, with ARMs more prevalent in Spain and Italy and FRMs more common in France and Germany, and across households, with 32% of mortgages held by the lowest income quintile being ARMs versus 17% for the highest quintile. The bottom income quintile’s average mortgage rate reached about 3% in 2024 (2.7% for “budget-constrained” households), compared with just above 2% for the top quintile; lower-income borrowers are projected to face steeper increases until 2026, with higher-income borrowers catching up later as more FRMs reprice. The survey evidence also links higher debt-service costs to weaker spending: around 46% of mortgagors reported reducing usual spending over the past 12 months due to, or in anticipation of, higher interest payments, and 48% planned to continue limiting consumption over the next year, with planned cutbacks varying by mortgage type and interest-rate expectations.
European Central Bank 2025-05-28
European Central Bank blog analysis finds euro area mortgage rates may keep rising after rate cuts and weigh on consumption until 2030
The European Central Bank's analysis suggests that average interest rates on euro area mortgages will continue to rise despite recent policy rate cuts, due to the gradual repricing of the mortgage stock following the 2022-23 tightening cycle. Around a quarter of mortgages are adjustable-rate, with fixed-rate mortgages resetting to higher rates over time, impacting private consumption until at least 2030. Survey data indicates that higher debt-service costs have already led 46% of mortgagors to reduce spending, with further cutbacks anticipated.