European Low-Income Households Facing Mortgage Payment Delays, ECB Research Shows

A growing number of low-income Europeans expect to fall behind on large bills in the coming months due to rising interest rates, according to a study by the European Central Bank ( ECB).

Since the ECB started raising interest rates in July 2022, the total cost of housing increased by 6% for homeowners, but 12% and 9% for borrowers and renters respectivelyfeatures the report by Omiros Kouvavas and Desislava Rusinova.

In January 2024, families paid on average 765 euros per month for all housing-related costs, including utilities (such as gas, electricity and water), home maintenance and rent or mortgage costs, according to the report.

Housing costs represent about 40% of the income of renters, 35% of the income of mortgage borrowers and 20% of the income of home owners. In addition, people on the minimum income have to spend about half of their monthly salary to rent their homes.

People who have a mortgage loan will have the biggest problems

Among the three main categories, Mortgage lenders face the highest feesdue to rising interest rates, with an average monthly payment of over 1,100 euros.

Rising interest rates have also left their mark on the rental market. Rising borrowing costs have delayed new investments, while the rental marketwhich was already facing a shortage of available housing, saw its prices rise accordingly.

According to the ECB, renters pay more than 800 euros on average in the 11 countries surveyed, while owners come closer to paying 500 euros per month, mainly due to rising housing maintenance costs. Utility costs have fallen recently.

Of the 11 countries surveyed, yes Ireland that housing costs appear to be at their peak, approx 900 euros per month without mortgagemore more than 1,200 euros if we include the mortgage payment.

Housing counts are second and third highest Germany and in Austriawhere they are around 750 euros (900 euros with mortgage). AN Greeks and the Portuguese the Lowest housing costs in 11 countries.

When examining housing costs as a proportion of household income, theAustria Appears as the most expensive countrywith 29% (33% if mortgages are included in the calculation) income spent on these expenses.

How does the risk of late payment increase?

Increases in household income have more than offset increases in housing costs in recent years, although some low-income households have remained ( between 5% and 10% of the lowest 50% of earners) who have been late in their payments in previous months. However, the ECB’s positive index now indicates that their expectations for the coming months have been lowered.

“The proportion of households expecting a late payment in the next three months rose significantly among low-income households,” the report said.

The portion of Low-income households who expect to be late on utility or rent payments in the next three months increased from 15% to more than 20% and nearly doubled to 30%. regarding late mortgage payments.

As inflation falls in the Eurozonewe expect the ECB begins historically high interest rate cuts in Junewhich will provide some relief to the property market by allowing investment to increase and a greater selection of properties to be brought in, thus allowing mortgage and rental costs to ultimately decrease.