Real estate: these European countries where the trap of variable rates is closing on borrowers
Seen from France, where real estate loans are made at a fixed interest rate over twenty or thirty years, the system seems crazy. However, it is very widespread. Just about everywhere in Europe – but this is also true in a large part of the world – households take out mortgages at fluctuating interest rates. With the risk that their monthly payments will increase as central banks raise their key rates.
But this is precisely what is happening with the shock of inflation, which has been spreading across the planet for eighteen months. The European Central Bank (ECB) has already raised its interest rate from -0.5% to 2.5% (and was to raise it to 3% on Thursday March 16), the fastest rise since the creation of the eurozone. Same thing in neighboring countries, including the UK, Sweden and Central Europe.
In this context, Europe is divided in two. France, Germany and the Netherlands, which essentially operate with fixed rates, are relatively spared. This is not the case for Greece, Portugal or even Spain and Italy, where “households are facing the rise in the interest rate and therefore their repayments and the increase in the cost of living”explains Alessandro Pighi, analyst at the rating agency Fitch.
Two countries in particular are becoming “the canaries in the mine”, warns Gilles Moëc, chief economist at Axa: Sweden and the United Kingdom. In a note, he notes with concern the cold snap affecting the real estate sectors of these two countries, both of which have entered into recession. “Real estate is often the first negative sign, and behind it, it hurts”, he wrote. In Sweden, stone prices, which kept on rising, are already down 12% from their peak. In the United Kingdom, the fall, since the summer of 2022, is 4%.
The current situation, however, has nothing to do with the great financial crisis of 2008, when real estate experienced a global crash. “Over the past decade, banks have adhered to much stricter lending criteria, with significant oversight from regulators, explains Mr. Pighi. Moreover, to have a real turnaround, a sharp rise in unemployment would be needed. » Which is currently not the case.
The situation remains no less delicate in many countries: increase in foreclosures in Greece, households in difficulty in Spain, jump in monthly payments of 40% in the United Kingdom… In Sweden, a country which nevertheless wants to be financially rigorous, the political debate even revolves around a possible moratorium on the repayment of mortgages.
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