Eurozone households renew loan demand – ECB

Eurozone households are increasingly applying for loans for the first time in two years, driven by economic optimism and falling interest rates, according to a European Central Bank (ECB) survey released on Tuesday.

The ECB began cutting interest rates in June, but borrowing costs had already been decreasing, making credit more attractive. In the ECB’s Bank Lending Survey (BLS), a net 16 per cent of lenders reported a rise in household loan demand from April to June, marking the first increase since 2022. This trend is expected to continue this quarter.

“Improving housing market prospects, cited primarily by German banks, were the main driver of the increase in housing loan demand,” the ECB stated. “The general level of interest rates and consumer confidence had a smaller positive impact.”

While the ECB is expected to keep rates steady this week, two more cuts are anticipated by the end of the year. Concurrently, banks have eased mortgage conditions for a second consecutive quarter due to stronger competition but have tightened access to consumer credit due to perceived risks.

Conversely, conditions for corporate loans have continued to tighten modestly, with a decline in demand. This tightening has been “relatively large” for companies in commercial real estate (CRE), aligning with the ECB’s supervisory policies.

“In the second half of 2024 euro area banks expect a net tightening in lending conditions, combined with a moderate net increase in loan demand in most economic sectors except construction and CRE,” the ECB said.