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Bank lending rates and the riskiness of euro area household loans

Author

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  • Palligkinis, Spyros

Abstract

I assess the impact of the recent hike in bank lending rates on euro area retail borrowers using a novel microsimulation framework that updates household-level data of a recent representative survey with up-to-date macro-financial information. The key novelty is that existing mortgages are gradually repaid, and new ones are extended, a feature necessary for medium-term simulations in a period of sizable credit growth. Since lending rates have increased, debt servicing has become more demanding, and the simulated share of distressed loans has increased. Effects are stronger for adjustable-rate mortgages, and especially for the most recent among them, but are present in all portfolios. JEL Classification: C1, G2, G51, E52

Suggested Citation

  • Palligkinis, Spyros, 2025. "Bank lending rates and the riskiness of euro area household loans," Working Paper Series 3053, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20253053
    Note: 2140773
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    More about this item

    Keywords

    financial stability; household finance; microsimulations; monetary policy;
    All these keywords.

    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • G2 - Financial Economics - - Financial Institutions and Services
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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