customer profile
The current climate highlights how mortgage choices vary by country and by the type of rate chosen. In many European nations, Euribor-linked loans remain common, even as fixed-rate products gained momentum during a period of historically low rates. This shift has the potential to affect borrowers when rate reviews occur, especially in countries with a substantial share of floating-rate mortgages.
Across Portugal, Spain, Ireland, and Italy, the mix of floating rate mortgages has been notable, with outstanding balances now substantially below levels seen in 2007. The rate chosen for reviewing these loans often depends on the instrument originally agreed: for Ireland or Italy, a three-month Euribor; for Portugal, a six-month Euribor; and for Spain, a one-year Euribor is frequently used.
During the era of ultralow euro-area rates, banks actively marketed fixed-rate loans while continuing to offer Euribor-based products. As rates rise over time, those Euribor-linked loans are poised to become more expensive at the point of adjustment.
Data from the European Mortgage Federation indicates that before the summer, about one third of new mortgages in Portugal carried floating rates, with Italy slightly above a quarter and Spain near one in five. These figures reflect a market still heavily exposed to interest-rate movements, which can influence payment levels when the terms come up for renewal.
economic profile and risk considerations
In the evolving situation, the borrower’s profile becomes a central factor. Whether the loan is floating and set to rise at review, or fixed with a steady fee but reduced disposable income due to higher living costs, the effect on household finances is tangible. The European Central Bank (ECB) has noted that low-income households face the steepest challenges from rising prices and interest rates, since a larger share of income must cover essentials such as energy and food.
With savings margins already tight, this combination can push these households into a more precarious position. A typical middle-income family allocates roughly one third of income to basic needs, which leaves limited room to purchase durable goods or weather financial shocks. In contrast, the lowest income quintile spends around seven tenths of income on essentials, so even a modest rise in living costs erodes purchasing power more quickly than it does for middle-income households.
Despite these dynamics, the supervisor expects the near-term impact of rising rates to be less severe, given that the majority of European mortgages are fixed-rate products. Yet, in Portugal, Spain, Ireland, and Italy, the relatively higher share of floating-rate loans could translate into noticeable increases in debt-service costs for borrowers who recently benefited from lower rates.
According to ECB research, higher-income households absorb mortgage costs more easily on average, though there are country-specific differences and concerns about extending higher credit rates to vulnerable populations, a situation observed in Spain. [ECB Financial Stability Review, recent assessments]
ECB and mitigation measures
European authorities have outlined policy steps aimed at softening the impact of rate shocks. Efforts include cooperation with banks to assist the most financially exposed households and to prevent a widening of inequality. The ECB notes that, depending on labor-market developments and interest-rate trajectories, even higher-income households could face medium- to long-term risks as borrowing capacity is fully utilized in some markets.
When fixed terms expire or if unemployment rises and income falls, the burden of mortgage payments can intensify for households that relied on favorable rates in the past. These dynamics emphasize the importance of prudent financial planning and timely consideration of refinancing options when market conditions shift, as well as the role of policy measures in maintaining financial stability. [ECB policy notes on mitigations]