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Larissa Zimmermann
- 18 June 2025
- ECONOMIC BULLETIN - ARTICLEEconomic Bulletin Issue 4, 2025Details
- Abstract
- This article analyses the transmission of monetary policy to consumption via its impact on mortgage payments. Simulations using the current distribution of loans across households show that, despite rate cuts, a substantial part of past tightening is still in the pipeline. The average interest rate on outstanding mortgages is expected to continue to increase, translating into a persistent drag on the expected consumption recovery. Lower-income households were affected earlier in the cycle and will be the most affected by 2030 in cumulative terms, disproportionately weighing on consumption due to their higher marginal propensities to consume. The estimates suggest that up to 35% of the overall impact on consumption via this mortgage cash flow channel has not materialised yet. This delayed drag distinguishes the current easing cycle from previous ones. It reflects (i) the fact that the latest hiking cycle started after a long period of low rates, (ii) the less complete pass-through of hikes due to the higher share of fixed-rate mortgages and the pace and magnitude of the tightening cycle, and (iii) the outlook for the current interest rate cycle, which is expected to leave interest rates on new loans at higher levels than before 2021.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G51 : Financial Economics
- 28 May 2025
- THE ECB BLOGDespite recent ECB rate cuts, the average interest rate on mortgages is expected to increase further. This is because of lagged effects from the latest hiking cycle. The ECB blog shows that the resulting drag on consumption could last at least until 2030.Details
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
- 17 March 2025
- ECONOMIC BULLETIN - BOXEconomic Bulletin Issue 2, 2025Details
- Abstract
- The ECB Consumer Expectations Survey (CES) provides regular and timely information on household rent expenditure. This information has been used to analyse developments and to construct an indicator for rent growth that is largely free of composition effects from respondents entering or leaving the panel of survey respondents. Combined with the rich micro data from the CES, this new indicator allows for a detailed analysis of rent growth and its drivers. According to this novel CES-based indicator, rent growth in the euro area peaked in the third quarter of 2023. It then declined but has remained above 3% up to the third quarter of 2024. Given the ease with which rent adjustments can be made, rent growth per square metre has been more than proportionally driven by new rental contracts.
- JEL Code
- C43 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→Index Numbers and Aggregation
E31 : Macroeconomics and Monetary Economics→Prices, Business Fluctuations, and Cycles→Price Level, Inflation, Deflation
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers