According to a survey conducted by the European Central Bank (ECB), euro zone households are showing an increased interest in applying for loans. This marks the first time in two years that such a trend has been observed. The growing optimism surrounding the economy, coupled with falling interest rates, has played a significant role in this development.
The ECB initiated a series of interest rate cuts in June, although the decline in borrowing costs on financial markets had already begun before that. As a result, credit has become more appealing to borrowers over time.
The survey revealed that a net 16% of lenders participating in the ECB’s Bank Lending Survey reported a rise in loan demand from households during the three months leading up to June. This is the first recorded increase since 2022, and respondents expect this upward trend to continue in the current quarter.
The ECB attributed the surge in housing loan demand primarily to improving prospects in the housing market, with German banks being the main contributors. While the overall level of interest rates and consumer confidence had a slightly smaller positive impact, they still played a significant role in driving the increase in loan demand.
The European Central Bank (ECB) is predicted to maintain interest rates at their current level this week, but the market has already priced in two more rate cuts by the end of the year.
Meanwhile, banks have relaxed mortgage lending conditions for the second consecutive quarter due to increased competition. However, they have tightened access to consumer credit due to perceived higher risk.
On the other hand, conditions for corporate loans have slightly tightened, resulting in a decline in demand for such loans.
The tightening of lending conditions was particularly noticeable for companies in the commercial real estate sector, which aligns with the ECB’s supervisory policy as the euro zone’s banking overseer.
According to the ECB, euro area banks expect a net tightening of lending conditions in the second half of 2024. However, there is also a moderate net increase in loan demand across most economic sectors, except for construction and commercial real estate.