Variable rate mortgages with rising payments

In January 2022, the European Central Bank (ECB) raised interest rates on adjustable rate mortgages. This had a significant impact on the average installment of these loans, which increased by an average of +36% compared to mid-2022. The peak increase was +49% for mortgages disbursed in the last five years.

According to an analysis conducted by CRIF, borrowers with variable rate mortgages saw a +25% increase in their overall debt levels over the past five years as a result of the rise in interest rates. While insolvency rates did not increase significantly for those with adjustable rate mortgages, there was an increase in financial tension as indicated by CRIF’s financial tension index.

Simone Capecchi, Executive Director of CRIF, highlighted the impact of interest rate dynamics on variable rate borrowers in the last two years. Although there has been no significant increase in insolvency rates, there has been a notable rise in financial stress among borrowers with variable rate mortgages.

Capecchi emphasized that while it is important to remain vigilant and prepared for future challenges, a potential rate cut in June 2024 could provide relief for borrowers and help stabilize their financial situations. He also suggested that it is crucial to monitor macroeconomic and geopolitical uncertainties closely and take necessary precautions to mitigate any potential risks.

The main finding from the CRIF analysis is that borrowers with adjustable rate mortgages have seen an increase in their financial exposure due to rising interest rates and higher debt levels over the past five years. However, despite this, they did not show an increase in insolvency rates but rather experienced more financial tension.

In conclusion, while interest rates have risen on adjustable rate mortgages, it is essential to remain vigilant and take necessary precautions to mitigate any potential risks. A potential rate cut in June 2024 could provide relief for borrowers and help stabilize their financial situations.

By Sophia Gonzalez

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