The rise in interest rates overwhelms many homeowners in Europe.
(Photo: dpa)
Dusseldorf The warnings from our neighbors in Europe are impressive: in Sweden, four percent of all property owners can no longer service their loans. The head of the Swedish financial supervisory authority speaks of “unprecedented financial pressure on households”. The problem is also growing in other European countries. The reason: Homebuyers have taken out loans with variable interest rates, and the fact that interest rates have quadrupled in a short period of time is overwhelming for many households.
While Germany traditionally works with fixed interest rates and the higher interest rate will only become an issue here in the coming years for follow-up financing, the situation is different in the rest of Europe. In large parts of southern Europe, but also in the Baltic States and Scandinavia, for example, variable financing is used for the most part.
Building interest rates: Variable interest rates pose a risk for owners
This has advantages in good times because there is no interest rate premium for the fixed interest rate, but in times of crisis it unnecessarily increases the risk of households getting into difficulties that threaten their very existence. In an emergency, personal bankruptcy, foreclosure or homelessness can threaten, as has recently been shown in the financial crisis not only in the USA.
>> Read here: How governments deal with rising mortgage rates
The real estate crisis that is now looming again makes it clear that many consumers continue to systematically underestimate the risk of interest rate changes. This is all the more dangerous because buying a home is the biggest financial decision in life for most people and the associated risks should be minimized as much as possible.
The EU would therefore do well to introduce a mandatory fixed interest rate for real estate loans, at least for non-professional players in the real estate market. If only because problems on the real estate market can quickly pose a threat to financial stability as a whole.
More: When the home loan expires – tips for real estate owners