Mortgage interest rates in Europe soared in 2022 and remained elevated in 2023. In many countries, this resulted in interest rates more than doubling. In Denmark, the average mortgage interest rate rose from 0.67 percent in 2021 to 4.98 percent in 2023. Why did mortgage interest rates increase? Mortgage rates have risen as a result of the European Central Bank (ECB) interest rate increase. The ECB increased its interest rates to tackle inflation. As inflation calms, the ECB is expected to cut rates, which will allow mortgage lenders to reduce mortgage interest rates. What is the impact of interest rates on homebuying? Lower interest rates make taking out a housing loan more affordable, and thus, encourage homebuying. That can be seen in many countries across Europe: In France, the number of residential properties sold rose in the years leading up to 2021, and fell as interest rates increased. The number of houses sold in the UK followed a similar trend.

The average mortgage interest rate decreased in nearly every country in Europe between 2012 and 2021, followed by an increase in response to inflation. In Hungary, Poland, Czechia, and Romania, mortgage rates peaked in late 2022 and the beginning of 2023, followed by a gradual decline until the first quarter of 2024. The rest of the countries under observation, including the biggest mortgage markets - the UK and Germany, saw a continued increase in interest rates until the fourth quarter of 2023. In the first quarter of 2024, mortgage interest rates declined quarter-on-quarter across almost all markets in focus, marking a long awaited easing of monetary policy.

In 2023, the average mortgage rates in European countries varied from 2.6 percent in Bulgaria to over eight percent in Hungary. The mortgage rate for a home purchase is decided depending on the individual situation of the homebuyer, their credit history, and income, but they also follow macro determinants including the base lending rate, inflation, economic growth, and the health of the housing market. Starts, completions and prices The supply of new housing varies in different countries in Europe. In 2023, the number of new housing units completed per 1,000 citizens was between 0.8 and seven, with this number varying greatly in different countries. Ireland and Poland were among the countries with most completed housing units. When it comes to housing starts, Ireland tops the ranking. The average transaction price of a new dwelling in 2023 ranged anywhere from roughly 1,300 euros per square meter to under 5,000 euros per square meter. Housing stock As the most populous country in Europe, Germany has the largest housing stock. Comparing the number of housing units per 1,000 citizens is an easy way to identify housing shortages. In Greece and the UK, for example, the number of dwellings per 1,000 citizens measured less than 400, compared to Bulgaria and Spain, where it was around 600.

Mortgage interest rates worldwide varied greatly in 2024, from less than four percent in many European countries, to as high as 44 percent in Turkey. The average mortgage rate in a country depends on the central bank's base lending rate and macroeconomic indicators such as inflation and forecast economic growth. Since 2022, inflationary pressures have led to rapid increase in mortgage interest rates. Which are the leading mortgage markets? An easy way to estimate the importance of the mortgage sector in each country is by comparing household debt depth, or the ratio of the debt held by households compared to the county's GDP. In 2023, Switzerland, Australia, and Canada had some of the highest household debt to GDP ratios worldwide. While this indicator shows the size of the sector relative to the country’s economy, the value of mortgages outstanding allows to compare the market size in different countries. In Europe, for instance, the United Kingdom, Germany, and France were the largest mortgage markets by outstanding mortgage lending. Mortgage lending trends in the U.S. In the United States, new mortgage lending soared in 2021. This was largely due to the growth of new refinance loans that allow homeowners to renegotiate their mortgage terms and replace their existing loan with a more favorable one. Following the rise in interest rates, the mortgage market cooled, and refinance loans declined.

The mortgage interest rate in Germany decreased notably between 2013 and 2022, falling below 1.5 percent. This was part of an overall trend of falling mortgage interest rates in Europe. The mortgage interest rate in Germany has since increased to 3.9 percent in the second quarter of 2024. The German mortgage market In Europe, Germany is the second-largest mortgage market, with a total value of mortgages outstanding amounting to over 1.8 trillion euros. Mortgage loans are one of the oldest bank products. Among the factors that influence mortgage interest rates are inflation, economic growth, monetary policies, the bond market, the stability of lenders, and the overall conditions of the housing market. Mortgage loans The higher cost of borrowing has a significant effect on the market: While the interest rates were at their lowest, mortgage lending was on the rise. In 2023, when the rates reached a 10-year-high, the quarterly gross mortgage lending fell to the lowest value since 2014. Meanwhile, house prices have also increased substantially in recent years. According to the House Price Index in Germany, between 2015 and 2022, house prices increased by over 60 percent.

European Union central banks navigated a complex economic landscape between 2022 and 2025, with interest rates initially rising across member states. However, a pivotal shift occurred in late 2023 as most countries began lowering their rates, reflecting the delicate balance between controlling inflation and supporting economic growth. In the Euro area, the European Central Bank (ECB) led this trend by cutting interest rates from 4.5 percent to 3.15 percent in 2024, implementing four strategic rate reductions throughout the year. This approach was nearly universally adopted, with Poland being the sole EU country not reducing its rates during this period. Global context and policy shifts The interest rate changes in the EU mirror similar movements in other major economies. The United States, United Kingdom, and European Union central banks followed remarkably similar patterns from 2003 to 2024, responding to shared global economic conditions. After maintaining near-zero rates following the 2008 financial crisis and the COVID-19 pandemic, these institutions sharply raised rates in 2022 to combat surging inflation. By mid-2024, the European Central Bank and Bank of England initiated rate cuts, with the Federal Reserve following suit. Varied approaches within the EU Despite the overall trend, individual EU countries have adopted diverse strategies. Hungary, for instance, set the highest rate in the EU at 13 percent in September 2023, gradually reducing it to 6.5 percent by September 2024. In contrast, Sweden implemented the most aggressive cuts, lowering its rate to 2.25 percent by February 2025, the lowest among EU members. These divergent approaches highlight the unique economic challenges faced by each country and the flexibility required in monetary policy to address specific national circumstances.

Mortgage rates in the Netherlands increased sharply in 2022 and 2023, after declining gradually between 2008 and 2021. In December 2022, the average interest rate for new mortgage loans stood at 1.65 percent, and by the end of 2023, it had risen to 4.13 percent. The 10-year interest rate was the lowest, at 2.96 percent; the floating and less than one-year interest rates amounted to 5.13 and 4.62 percent, respectively. In early 2024, mortgage rates decreased notably. Are mortgage rates in the Netherlands different from those in other European countries? When comparing this ranking to data that covers multiple European countries, the Netherlands’ mortgage rate was similar to the rates found in Spain, the United Kingdom, and Sweden. It was, however, a lot lower than the rates in Eastern Europe. Hungary and Romania, for example, had some of the highest mortgage rates. For more information on the European mortgage market and how much the countries differ from each other, please visit this dedicated research page. How big is the mortgage market in the Netherlands? The Netherlands has overall seen an increase in the number of mortgage loans sold and is regarded as one of the countries with the highest mortgage debt in Europe. The reason behind this is that Dutch homeowners were able to for many years to deduct interest paid from pre-tax income (a system known in the Netherlands as hypotheekrenteaftrek). Total mortgage debt of Dutch households has been increasing year-on-year since 2013.

In 2022, Portugal overturned the sinking mortgage interest rate it had gone through during the coronavirus (COVID-19) pandemic. The country did not escape from the overall trend of falling mortgage interest rates observed in Europe during the COVID-19 crisis, which positioned national mortgage interest rates at 1.54 percent in the fourth quarter of 2021.

Interest rates as a weapon against inflation

Even though interest rates are affected by economic growth, monetary policies, the bond market, the stability of lenders, and the overall conditions of the housing market, inflation currently leads the European Central Bank (ECB)’s decisions regarding them. As inflation has been low in Europe since the 2008 financial crisis, the ECB lowered interest rates in an attempt to promote economic growth. However, the economic difficulties brought up by the coronavirus pandemic and the Russian-Ukrainian war have fueled inflation. To counteract this rise, the ECB increased interest rates. Portugal’s abrupt rise in interest rates on new residential loans from 0.83 percent in 2021 to 3.24 percent in 2022 demonstrates the balanced and calculated act between the two financial indices.

High interest rates and low mortgage lending

Compared to other European nations, Portugal has a low gross residential mortgage lending. In the third and fourth quarters of 2022, mortgage lending decreased in the country due to rising interest rates and worsening economic conditions. Despite being in a rising trajectory in terms of outstanding residential mortgage lending since the second quarter of 2021, 2023 registered decreasing figures caused by the same economic contingencies.

After a period of record-low mortgage interest rates, the cost of mortgage borrowing in Germany surged in 2022. In 2019, mortgage rates declined notably, falling as low as 1.16 percent in December 2020. This downward trend reversed in 2021, as mortgage rates started to gradually pick up. Five-to-ten-year mortgage loans had the lowest rates in October 2023 at 3.85 percent, while floating rate mortgages up to one year were the most expensive at 5.53 percent. Mortgages with over 10-year fixed period – the most popular loan type among homebuyers - had an interest rate of 3.9 percent.

Why did mortgage rates in Germany increase?

In 2022, the yearly inflation rate in Germany experienced a swift rise, prompting the central bank to raise interest rates to counter this surge. The European Central Bank (ECB) is responsible for determining Germany's central bank interest rate. In July 2022, following a prolonged period of stability, the average interest rates in Germany began a steady rise, which persisted consistently thereafter.  This increase is intended to stabilize prices, but it also means higher borrowing costs for those seeking mortgages.

Downturn in Germany's home loan borrowing

From 2022 onward, the gross residential mortgage lending in Germany fell dramatically. Besides the higher interest rates, the downturn can be explained by the slowed pace of economic growth, which makes individuals and businesses more cautious about big investments such as buying a home. Additionally, the German housing market suffers a chronic undersupply, meaning that homebuyers often struggle to find an affordable home to purchase.

The United Kingdom, Germany, and France were the countries with the largest mortgage markets in Europe in 2024, when considering the value of loans outstanding. In the second quarter of the year, the UK had more than 1.9 billion euros worth of mortgages outstanding. Other countries with large mortgage markets included the Netherlands, Spain, Sweden, and Italy - all exceeding 400 billion euros. One of the main drivers of mortgage activity is the cost of borrowing. In 2022, interest rates increased dramatically across Europe. Ireland, and Germany remained among the few countries with an average interest rate under four percent.

The mortgage interest rate in France had been on a downward trend for nearly a decade, until it started to rise in 2022. In the second quarter of 2024, the interest rate amounted to 3.49 percent, up from 2.89 percent during the same period in 2023. A similar trend can be observed across most European countries.

Policy interest rates in the U.S. and Europe are forecasted to decrease gradually between 2024 and 2027, following exceptional increases triggered by soaring inflation between 2021 and 2023. The U.S. federal funds rate stood at 5.38 percent at the end of 2023, the European Central Bank deposit rate at four percent, and the Swiss National Bank policy rate at 1.75 percent. With inflationary pressures stabilizing, policy interest rates are forecast to decrease in each observed region. The U.S. federal funds rate is expected to decrease to 3.5 percent, the ECB refi rate to 2.65 percent, the Bank of England bank rate to 3.33 percent, and the Swiss National Bank policy rate to 0.75 percent by 2025. An interesting aspect to note is the impact of these interest rate changes on various economic factors such as growth, employment, and inflation. The impact of central bank policy rates The U.S. federal funds effective rate, crucial in determining the interest rate paid by depository institutions, experienced drastic changes in response to the COVID-19 pandemic. The subsequent slight changes in the effective rate reflected the efforts to stimulate the economy and manage economic factors such as inflation. Such fluctuations in the federal funds rate have had a significant impact on the overall economy. The European Central Bank's decision to cut its fixed interest rate in June 2024 for the first time since 2016 marked a significant shift in attitude towards economic conditions. The reasons behind the fluctuations in the ECB's interest rate reflect its mandate to ensure price stability and manage inflation, shedding light on the complex interplay between interest rates and economic factors. Inflation and real interest rates The relationship between inflation and interest rates is critical in understanding the actions of central banks. Central banks' efforts to manage inflation through interest rate adjustments reveal the intricate balance between economic growth and inflation. Additionally, the concept of real interest rates, adjusted for inflation, provides valuable insights into the impact of inflation on the economy.

The mortgage interest rate in Ireland increased notably in 2023. From 2.77 percent in the fourth quarter of 2022, the rate reached 4.19 percent in the same quarter of 2023. This was part of an overall trend of increasing mortgage interest rates in Europe. Factors that influence mortgage interest rates include inflation, economic growth, monetary policies, the bond market, the stability of lenders, and the overall conditions of the housing market.

The mortgage prevalence among homeowners in Europe varied widely across different countries in 2023. About 79 percent of the total population in Norway was a homeowner, with 60 percent paying out a mortgage loan. Conversely, only one percent of households in Romania had a mortgage, with nearly 96 percent being homeowners. Meanwhile, an average of 25 percent of the total population within the EU-27 was an owner-occupant with a mortgage or housing loan. Homeownership depends on multiple factors, such as housing policy, the macroeconomic situation, the state of the housing sector, and the availability of finance. Countries with more developed mortgage markets tend to have lower mortgage interest rates.

The mortgage interest rate for all maturities beyond ten years of the initial fixed period in Italy decreased overall between 2016 and 2021, followed by an increase in 2022. As of the second quarter of 2024, the average mortgage rate was 3.44 percent. As of December 2019, interest rates were the highest in Sardinia and the lowest in Lombardy.

The mortgage interest rate in Sweden rose dramatically in 2022, following a long period of mortgages maintaining rates below two percent. In the second quarter of 2024, the average weighted interest rate stood at 4.53 percent, more than three percentage points above the rate in the fourth quarter of 2021. In Europe, Sweden ranked alongside Spain, Hungary, and Poland.  Homeownership in Sweden   The homeownership rate in Sweden did not vary significantly over the period from 2008 to 2019. It peaked in 2010 and slightly fluctuated the following years. The rate was lowest in 2019, amounting to roughly 63.6 percent. Profile of the European homeowner  Swedes, Germans, Austrians, Turks, and Danes are the European citizens for who homeownership was the least common. Romania was the country with the highest homeownership rate among selected European countries in 2021, followed by Slovakia. Both countries had a rate higher than 92 percent. In general, it seemed to be more common to own a home in Eastern European countries than in the Western part of the continent.

Mortgage interest rates in Spain soared in 2022, after falling below 1.5 percent at the end of 2021. In the second quarter of 2024, the average weighted interest rate stood at 3.46 percent. That was lower than the rate in the same period the previous year. Despite the increase, Spain had a considerably lower mortgage interest rate than many other European countries.The aftermath of the property bubble Before the bursting of the real estate bubble, the housing market experienced a period of intense activity. A context marked by economic growth, high employment rate, low interest rates, skyrocketing house prices and land speculation, among others, encourage massive lending for the acquisition of property; in 2005 alone, more than 1.3 million home mortgages were granted in Spain. When the bubble burst and the financial crisis hit the country, residential real estate transactions plummeted and households’ non-performing loans jumped to nearly 50 billion euros as countless families were not able to cope with their debts. Over a decade after the onset of the crisis, and despite falling mortgage rates, the volume of mortgage loans keeps decreasing every year. A homeowner country Traditionally, Spain has been a country of homeowners; in 2021, the homeownership rate was roughly 76 percent. While nearly half of Spanish households own their property with no outstanding payment, the percentage of households that have loan or mortgage pending has been decreasing in recent years. Despite ownership remaining as the preferred tenure option, cultural changes, job insecurity and mounting house prices are prompting Spaniards to opt more and more to become tenants instead of owners, as shown in the changing dynamics of the Spanish residential rental market.

The average mortgage interest rate in Spain followed a downward trend for almost a decade before increasing dramatically in 2022. In 2023, new housing loans had an average interest rate of 3.74 percent - about three times the interest rate in 2020. Mortgages with a five to 10-year term were the only product which saw rates decline between 2022 and 2023. Why did mortgage rates spike? Macroeconomic factors, such as inflation, economic growth, and fiscal policy, play a major role in determining the cost of a loan. Inflation in Europe started rising in late 2021, largely due to surging energy costs. In Spain, the annual change of the consumer price index peaked at almost 11 percent in July 2023. The European Central Bank has responded by introducing a series of hikes on the key interest rates (main refinancing operations, marginal lending facility, and deposit facility), which have affected lending rates across the European Union. How has the housing market reacted to the interest rate hike? The housing market follows a certain seasonality, with more home sales in the second and fourth quarters of the year. This was also the case in 2022, but the last quarter of the year saw an annual decline. Though compared to previous years, the number of transactions was one of the highest, the annual decrease shows a potential downturn.

The mortgage interest rate in Finland generally decreased between 2014 and 2022, followed by an increase. Factors that influence mortgage interest rates include inflation, economic growth, monetary policies, the bond market, the stability of lenders, and the overall conditions of the housing market. The mortgage interest rate in Finland decreased to its lowest value of 0.69 percent in the fourth quarter of 2020 as part of an overall trend of falling mortgage interest rates in Europe. The mortgage interest rate has since risen to 4.31 percent by the second quarter of 2024.

Ukraine was one of the countries in Europe with the highest average lending interest rates in 2022. It was followed by Belarus, Moldova, and Russia with average interest rates of over 11 percent. On the other side of the spectrum, Italy and Switzerland had an interest rate of less than three percent that year. Nevertheless, the terms and conditions of those loans can be quite different in each country, which reduces the comparability of these figures.