The ECB is expected to hike rates at its policy meeting tomorrow, and while the immediate result will be a tightening of the money supply within the eurozone, a key trickle on effect will be more damaging to the region’s weakened economies than others, according to Societe Generale’s Michel Martinez.
Martinez points out that in Ireland and Spain, a large portion of mortgages are variable rate, and will be directly impacted by the ECB’s rate hike.
Last but not least, the share of variable rate mortgages is high (85% in Ireland and Spain according to the European Mortgage Federation), which means that the transmission channel of the ECB rate hikes will be rapid. In these countries, it will take several years for households to clean up their balance sheets and begin demanding new mortgage loans.
In Spain and Ireland, where home prices have already fallen sharply, more bad news may be on the way quickly.
Photo: Societe Generale