Stress in the euro zone market for home loans is \u201cmanageable\u201d despite higher interest rates stretching borrowers and lax checks by some banks, the European Central Bank said on Wednesday.
\nRecord high interest rates, imposed by the ECB to bring down inflation, have taken a toll on house prices, particularly in countries where there had been boom when rates were low, such as Germany.
\nThe ECB reviewed the mortgage books of 37 euro zone banks, accounting for 40% of the sector\u2019s 3.7 trillion euros ($4.00 trillion) exposure to residential real estate (RRE).
\nIt found deficiencies in how mortgages are originated but still came away with a reassuring message.
\n\u201cWhile the review uncovered some challenges in the RRE sector, the overall outlook remains relatively positive,\u201d the ECB said in a newsletter. \u201cAlthough RRE is under some stress, this appears manageable, and banks are actively engaged in addressing concerns.\u201d
\nOf the 1.4 trillion euros worth of home loans outstanding as of last June, 412 billion euros were set to have their interest rate re-set \u2013 likely much higher \u2013 by June 2025, the ECB said.
\n\u201cThis will entail a material risk for borrowers not able to meet higher interest rates,\u201d it added.
\nThe ECB\u2019s review also showed that lenders were still not adequately weighing up risks before granting a mortgage \u2013 16 years after a global financial crisis that started in that market and a decade since the ECB took over bank supervision.
\nFor example, banks in certain countries did not apply limits on the ratio between a loan and the value of the property, or between the cost of servicing a mortgage and the borrower\u2019s income \u2013 or that those thresholds could be overruled.
\nSpecifically, 46.5% of mortgages originated in the 12 months to June 2023 had a loan-to-value ratio of more than 80%, and even exceeding the value of the property in 16.5% of the cases.
\nBanks appeared to be taking more risks just before, or when, rates started rising: between June 2021 and June 2023, the share of mortgages extended to borrowers who spend more than 30% of their income on servicing the loan increased from 47% to nearly 53%.
\n\u201cThe 30% threshold is not risky in itself but it is from that level onwards that deterioration might appear,\u201d the ECB said.
\nFor around 40% of new home loans originated between in the year to June 2022, collateral valuations were not carried out by a valuer. Banks also \u201cseem to struggle\u201d with assessing a borrower\u2019s repayment capacity.
\nThe ECB said banks have been \u201casked to remediate deficiencies\u201d and the findings will not affect requirements.
\n\u201cOverall, while there are areas for improvement, the banking sector\u2019s response suggests there is a commitment to mitigating risks and maintaining stability in the RRE landscape,\u201d the ECB said.
\n(Reuters)mortgage loans. Stress, higher interest rates, lax checks<\/p>\n","protected":false},"excerpt":{"rendered":"
Stress in the euro zone market for home loans is considered manageable by the European Central Bank, despite higher interest rates and lax checks by some banks. The ECB reviewed the mortgage books of 37 euro zone banks and found deficiencies in how mortgages are originated. Specifically, the ECB found that some banks were not adequately weighing up risks before granting a mortgage, leading to concerns about borrowers being able to meet higher interest rates. Banks were also found to be taking more risks just before or when rates started rising. The ECB has asked banks to address these deficiencies, but overall, the banking sector’s response suggests a commitment to mitigating risks and maintaining stability in the residential real estate landscape.<\/p>\n","protected":false},"author":5,"featured_media":11910,"comment_status":"open","ping_status":"closed","sticky":false,"template":"Default","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[1902,2690,611,6595,4601,2134,1002,2577,113,5255,6387,50,26,599,51,7923,6027,576,10110,9046,2834,7132,2294,67,613,899,374,1401,8036,10111,900,4074,4442,1033,284,287,8171,8257,4054,10109,5063,6305],"class_list":["post-11909","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-other","tag-bank","tag-banking-sector","tag-banks","tag-capacity","tag-central-bank","tag-challenges","tag-checks","tag-concerns","tag-cost-of-living-crisis","tag-crisis","tag-deterioration","tag-ecb","tag-economy","tag-euro","tag-european-central-bank","tag-exposure","tag-financial-crisis","tag-germany","tag-higher-interest-rates","tag-house","tag-house-prices","tag-improvement","tag-income","tag-inflation","tag-insider-economy","tag-interest","tag-interest-rate","tag-interest-rates","tag-landscape","tag-lax-checks","tag-loan","tag-loans","tag-message","tag-prices","tag-property","tag-real-estate","tag-record","tag-response","tag-risk","tag-stress","tag-supervision","tag-who"],"acf":{"keyphrase":"","keywords":"","sourceimg":"","country-category":""},"yoast_head":"\n