European banks: mortgage distress, or interest caps, take your pick
Turmoil in the British gilts market has had a knock-on effect on UK housebuyers. Fixed mortgage rates have shot up to average over 5 per cent. On the continent, upward pressure has been exerting itself on the variable rate products that often predominate.
Reports that CaixaBank is proposing a year-long freeze in variable mortgage rates hit shares in Spanish banks on Wednesday. They have a lot of home loans on their books. Poland has already enacted a mortgage moratorium. Lenders elsewhere may find themselves asked to help out homeowners most at risk.
For now, talk of any housing meltdown is premature. Unemployment is low. Issuance of variable-rate mortgages in Europe has been reduced sharply. In markets badly hit by previous housing crashes, such as Spain, house price to income ratios remain below previous peaks. Meanwhile, bank shareholders sit on ample capital reserves. Investors hoping for a windfall from rising rates should temper their expectations.
This story originally appeared on: Financial Times - Author:Tax Cognition
