In June 2023, the average home loan interest rate was 4.02%, slightly below the 4.08% noted in May, according to the latest data from European Central Bank.

However, these figures only represent rates for new business.

When considering interest rates across all outstanding amounts, the average rate for June stood at 2.78%. This suggests that a significant portion of loans remains locked into lower fixed-rate interest contracts.

The disparity between the two--new and outstanding loan rates--can be a useful macroeconomic indicator to discern when more loans might transition from their initial fixed-rate period to variable rates and subsequently incur higher costs.

Historically, from 2015 to 2021, this spread was negative, meaning newly acquired loan rates were more appealing than the older rates borrowers had initially agreed upon.

This dynamic shifted in March 2022, as , signaling impending monetary policy adjustments, rendered new home loans pricier.

Due to the rapid monetary tightening by the European Central Bank, home loan interest rates surged considerably in a brief span.

This also resulted in a decline in new housing loan volumes, as some prospective homebuyers decided to delay signing new contracts when the rates were rising.

While the overall growth of interest rates was anticipated and less pronounced--largely because numerous households opted for long-term fixed-rate mortgages--this spread is now starting to even out.

This suggests that, in the future, a growing number of households might grapple with steeper interest rates, unless the ECB eases key banking rates.

But, given the ECB’s to maintaining a 2% inflation rate in the medium term and its intention to enforce restrictive banking rates as long as necessary, a decline in housing loan interest anytime soon is unlikely.

Consequently, many households might face budgetary strains in the upcoming months, if not throughout 2024 and beyond.

Renegotiations

It is also important to note that when households face financial constraints, they often opt to or switch to banks offering better terms.

While there has been a surge in renegotiation volumes in recent months, the trend has been somewhat muted by the rise in renegotiation rates as well.

Overall, the evolution of the number and volume of mortgage restructurings and new business loans will depend on several market conditions, such as demand and supply, in addition to the interest rates.