Euro Zone Mortgage Demand Sinks as Rates Bite, ECB Survey Shows

A net 27% of euro zone banks reported falling mortgage demand in the third quarter, the ECB said at 5 a.m. ET Tuesday. That was nearly double the 15% in the second quarter.

Banks had expected a drop of only 12%. The ECB's bank lending survey polled 159 banks between Sept. 21 and Oct. 6, and all of them answered. "Increases in interest rates were the main driver of the decline," the ECB said, followed by weaker consumer confidence and housing prospects.

Credit got harder to get

A net 9% of banks tightened standards for business loans, more than the 5% they had expected. Consumer credit standards tightened by a net 14%. Demand for business loans fell by a net 6%, after banks had forecast a rise. Rejected applications went up for every borrower group.

The outlook is weaker. For the fourth quarter, banks expect housing loan demand to fall by a net 36% and consumer credit demand by 14%. France showed the sharpest tightening among the large economies, Reuters reported.

Not every number is dire. The ECB said the drop in mortgage demand "remains well below the peak" of the last rate-hiking cycle.

A question about crypto

The survey asked about digital assets for the first time. Banks said they helped their business strategy slightly over the past year. For the next 12 months, they expect a bigger lift to strategy but a negative effect on their retail funding business. Access to retail funding already fell by the most since the series began in 2011.

In our opinion: the crypto answer is the line to clip. Europe's banks expect digital assets to help their plans and thin out their deposits at the same time.