Eurozone banks recorded a sharp decline in mortgage demand of 27% in the third quarter, higher than the 15% in the previous quarter, according to the latest bank lending survey from the European Central Bank (ECB). The main factor behind this decline was the increase in interest rates, followed by lower consumer confidence and the deterioration of housing market prospects.
Additionally, consumer credit demand and other household loans slightly decreased by 2%, also due to the evolution of interest rates and lower consumer confidence, followed by moderate spending on durable goods.
For the fourth quarter, banks expect more significant declines in the demand for mortgage loans (-36%) and consumer credit (-14%).
Meanwhile, banks reported unchanged credit granting criteria for household loans for home purchases (net percentage of 0%) and additional tightening for consumer credit and other household loans (of 14%).
The overall conditions of banks — the actual conditions agreed upon in loan contracts — tightened for all credit segments, driven mainly by the increase in interest rates. Banks also recorded a net increase in the percentage of rejected loan applications for all borrower groups. This net increase was greater in consumer credit than in business loans and mortgage loans.
For the fourth quarter, Eurozone banks expect that credit quality will continue to have a greater negative impact on their credit granting criteria for business loans and consumer credit.