Bank lending rates and the riskiness of euro area household loans

Spyros Palligkinis

No 3053, Working Paper Series from European Central Bank

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

Keywords: financial stability; household finance; microsimulations; monetary policy (search for similar items in EconPapers)
Date: 2025-05
New Economics Papers: this item is included in nep-eec, nep-mac and nep-mon
Note: 2140773
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20253053

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