Faced with malformation interest rates and rising prices in real estate there are households who want to purchase residence through bank lending, which makes it difficult to make a decision mortgage loan.

Interest rates are close to 4.5% today, but if 3-month euroboron, which currently stands at 1.8% and the average margin (spread) of 2.7%, is expected to reach almost 6% next year, increasing the cost of borrowing for the housing market. This trend is reinforced by the prospect of 3-month Euribor rising above 3% over the next 12 months, which reduces not only floating interest rates but also fixed-term interest rates, which were a safe haven last year. after the successive increase in the ECB interest rate to curb high inflation.

Cost increase for bank lending combined with rising property prices, which, according to the Central Bank, is 9.3% in the first half of the year in terms of apartments, making it difficult for households to make a decision against the backdrop of a general upward trend in housing costs, which rose by 35.4% in September. It should be noted that the cost of housing includes, in addition to the cost of renting a house, also the cost of energy or the cost of maintenance, and its growth determines the shift in the housing market observed last year, which, however, entails its own risks.

Interest rates, which are currently close to 4.5%, are expected to reach almost 6% next year.

Thus, given that banks finance up to 70% of the value of the property through a mortgage, a loan of 100,000 euros represents a property value of approximately 143,000 euros. The same property is on average 9%-10% more expensive this year, and therefore the required loan, based on the financing rate applied by banks, is about 110,000 euros. That loan is burdened by a much higher interest rate this year, and so the housing market is burdened twice – both by the cost of the loan and rising home prices – making it difficult for households to make decisions.

The Bank of England points out that high inflationary pressures are slowing down the rate of change in property prices, which supports investment interest in the housing market in our country, which is still far from the historical maximum recorded before the financial crisis. Maintaining low mortgage rates made it easier for households to meet their loan obligations in the first half of 2022 and prevented the creation of new bad loans. In addition, due to the increase in gross disposable income, interest expenses as a percentage of household gross disposable income on housing loans fell further. However, since July 2022, the weighted average interest rate on outstanding household loan balances has increased to 4.5%, based on official data for September, from 3.9% in June, with a focus on long-term loans, i.e. over five years. Further increases in eurozone interest rates in the near future, the Bank of Greece warns, “are expected to have a progressively larger impact on the cost of servicing loans to households that are largely floating interest rates.”

With regard to the evolution of demand for loans in the housing market, data from the Central Bank show that the total volume of loans issued secured by residential real estate in the first half of 2022 amounted to 498.7 million euros (6,596 new loan agreements) and increased by 60% over compared to the corresponding period in 2021, which, however, was adversely affected by the coronavirus pandemic. Loan originations with an initial fixed rate period of more than 10 years account for 55.7% of all new loans, while loan originations with an initial fixed rate period of less than or equal to one year account for 26.6%. Preferring fixed-rate mortgages would mitigate the impact of monetary policy normalization on these borrowers, concludes the Bank of England, given that 54.6% and 41.6% of home-backed mortgage payments are in the low and medium risk categories, respectively, while only 3.9% of payouts are in the high risk category.