Home Mortgage Where are European mortgage holders most exposed to higher rates?

Where are European mortgage holders most exposed to higher rates?

by Joshua Garcia

Over the past year, mortgage borrowers across Europe have been shocked by the sharp rise in interest rates, resulting in higher monthly repayments. This has particularly affected those coming off fixed-rate deals of less than 2%. Customers in countries such as the UK, Spain, and the Netherlands have felt the impact the most, while borrowers in France and Italy have had some protection from higher rates.

In the UK, borrowers are among the most exposed due to higher interest rates and the prevalence of short-term fixed-rate deals. Over 1.4 million households will see their mortgage costs increase this year as fixed-rate deals end. However, since 2003, the proportion of mortgages on a variable rate has dropped significantly, providing some protection for borrowers.

In France, borrowers have had greater protection from higher rates due to longer fixed-rate mortgages and the usury rate, a maximum level of interest set by the Bank of France. However, these measures have resulted in a drop in new home loans as banks avoid loss-making deals.

Variable rate products account for the majority of mortgages in Spain, and rising interest rates have caused homeowners to panic and seek alternative products. The introduction of a 2019 mortgage law has made it easier for consumers to switch lenders. The fastest-growing category in Spain is now “mixed” mortgages, which offer a fixed rate for a few years before becoming variable.

German borrowers prefer longer-maturity mortgages, and the absence of strict limits based on income fueled a rise in house prices. However, the past year has seen a 10% drop in property prices, making mortgages less risky. Buyers are now paying larger deposits, often with help from family members.

Italian homeowners have traditionally preferred to purchase homes in cash, limiting their exposure to rising borrowing costs. However, some homeowners with variable-rate mortgages are struggling with higher costs, resulting in missed mortgage payments.

In the Netherlands, variable rate and short-term mortgages have become more popular as customers try to avoid locking into high rates. The property market has seen significant price increases, but prices are expected to drop by the end of this year, potentially resulting in negative equity for recent buyers.

Overall, the impact of higher interest rates on mortgage borrowers varies across different European countries, depending on factors such as the type of mortgage products available and the level of protection provided by regulators.

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