Summary of the working paper
Household indebtedness and monetary policy transmission after the pandemic.
“We studied the heterogeneity of household indebtedness in nine European countries (Belgium, Spain, Hungary, Ireland, Italy, Lettonia, Lithuania, Portugal and Slovakia) in the period 2022-24 using granular credit register data. We first documented substantial variation between and within countries in mortgages and consumer loans based on the age of the borrower., the maturity of the loan and the setting of the interest rate. We therefore quantified the transmission of the recent ECB tightening cycle to household borrowing costs and assessed its heterogeneous impact across households. Transmission is almost complete for mortgages (about 0,9), but considerably weaker for consumer credit (about 0,4). While the transmission of mortgages is relatively homogeneous across countries, Consumer credit shows marked differences between countries that cannot be explained by borrower or loan characteristics. Younger households experience greater mortgage pass-through, but a lower transmission of consumer credit, compared to older borrowers, while longer maturities are associated with greater pass-through in both credit markets.”
The European context
Between 2022 and 2024 the European Central Bank has started a cycle of rate increases unprecedented in recent decades, with the aim of bringing inflation back towards the target 2%.
A study published on the Bank of Italy website, conducted together with other central banks in the euro area, analyzed how these decisions affected the cost of borrowing for households in nine countries.
For mortgages the transmission is almost complete, with a pass-through near 0,9. For consumer credit it is much more attenuated, with coefficients around 0,36. From the point of view of differences generational i young people suffer more directly from the increase in mortgage rates, while on consumer credit the impact is smaller.
Focus on Italy
Peculiar characteristics emerge for Italian families. For mortgages taken out the preference for fixed rate contracts It made the transmission more gradual, but still significant. As regards the duration of mortgages in Italy, durations below prevail 20 years, unlike other countries like Portugal where they exceed 30 years.
For consumer credit, the pass-through of the increases was weaker than for mortgages, with greater dispersion between institutions. Most of the mortgages issued are concentrated for the age group 25-44 years. But for the younger ones, The increase in rates has represented a significant barrier to accessing property.
In short
- More expensive mortgages: who has taken out a mortgage between 2022 and 2023 paid much higher rates than pre-pandemic.
- Less sensitive consumer credit: personal and car loans were less affected by the ECB increases, but with greater cost variability.
- Generational inequalities: young people have suffered the impact on mortgages more directly, while more mature households have seen effects especially on consumer credit.
The ECB's monetary policy does not affect all families in the same way. In Italy, mortgages almost entirely transmitted the rate increases, while consumer credit showed greater resistance. This means that Italian families, especially those who are young and looking for a home, they paid the highest price for the monetary tightening.
Alex Gaetani
The complete document (in inglese) it can be downloaded here: Household indebtedness and monetary policy transmission after the pandemic.