April 14, 2024 1:59 pm
Variable rate mortgages with rising payments

In 2022, the European Central Bank (ECB) raised interest rates and this had a significant impact on variable rate mortgages. Specifically, the average installment of these loans increased by an average of +36% compared to mid-2022. This information was revealed in an analysis conducted by CRIF on the effects of the ECB’s rate hike.

The analysis showed that borrowers with variable rate mortgages experienced an increase in financial exposure despite making 24 installments between January 2022 and December 2023. Additionally, there was a +25% increase in overall debt levels for those with variable rate mortgages over the past five years. However, insolvency rates did not increase for those with adjustable rate mortgages.

While there was no significant increase in insolvency rates, there was an increase in financial tension among borrowers with variable rate mortgages, as indicated by CRIF’s financial tension index. This suggests that they are at a higher risk of defaulting on their loans.

Simone Capecchi, Executive Director of CRIF, commented on the impact of interest rate dynamics on variable rate borrowers over the past two years. While there has been no 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.

Given the current macroeconomic and geopolitical uncertainties, it is important for individuals and businesses to remain vigilant and prepared to face any challenges that may arise in the future.

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