Euro zone households seek loans again after two years – ECB

Euro zone households are applying for loans in growing numbers for the first time in two years as they grow more optimistic about the economy and interest rates fall, a European Central Bank survey showed on Tuesday.

The ECB began cutting interest rates in June but borrowing costs on financial markets started falling well before then, slowly making credit more attractive.

A net 16% of lenders polled in the ECB’s Bank Lending Survey (BLS) reported a surge in demand for loans from households in the three months to June, the first such increase since 2022, and respondents expect this trend 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 said. “The general level of interest rates and consumer confidence had a smaller positive impact.”

Similarly, banks eased conditions on mortgages for a second consecutive quarter due to stronger competition, although they tightened access to consumer credit because of growing perceived risk.

ING’s economist Bert Colijn said the survey provided “small positive notes” but still left “much room” for the ECB to keep cutting rates.

The central bank of the 20 countries that share the euro is expected to keep rates on hold this week but two more cuts are priced in by the end of this year.

On the flipside, conditions on corporate loans continued to tighten, even if only modestly, and demand for them declined.

The tightening was “relatively large” for companies in commercial real estate (CRE), in line with the ECB’s own policy as the euro zone’s bank supervisor.

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

The ECB also asked banks about their lending to companies based on their climate footprint, finding that a quarter of banks had eased access to credit for so called “green” companies and 44% had tightened it for “brown” ones over the past year.