The request for loans for the purchase of housing in the euro area has experienced a much more pronounced setback than expected and the largest contraction since 2023, according to the latest bank lending survey from the European Central Bank (ECB). The agency links this collapse to the rising cost of money, the deterioration of household confidence, and less favorable prospects for the real estate market.
The survey, conducted between late September and early October among 159 entities in the eurozone, reflects an increasingly intense net decline in mortgage demand during the third quarter of 2026. The decrease stood at 27%, compared to 15% in the previous quarter, which represents the largest contraction since the same period in 2023 and a deterioration much greater than what banks had anticipated (-12%).
The decline in demand for housing finance in the quarter was observed in Germany, Spain, and France, while in Italy it remained stable. This behavior is explained by the increase in interest rates, the loss of consumer confidence, and the worsening of expectations regarding the evolution of the real estate sector.
"The evolution of interest rates exerted substantial downward pressure on the demand for mortgage loans and contributed negatively in an increasing manner for the third consecutive quarter," emphasizes the ECB.
The contribution of this factor (-39%) was the highest since the third quarter of 2023 and the entities from the four largest economies in the euro area reported adverse derived effects. At the same time, lower consumer confidence continued to weigh down demand, although its impact was neutral in Spain and Italy. For its part, the prospects for the housing market negatively influenced mortgage contracting in Spain, France, and Germany, with a neutral effect in Italy.
Looking to the next quarter, banks in the euro area anticipate an "even greater and more pronounced" net decline in mortgage demand, with an estimated contraction of 36%. In this context, the case of France stands out, where a "particularly pronounced" drop (-88%) is anticipated, which, if confirmed, would only be comparable, since the beginning of the series in 2002, to that recorded in the fourth quarter of 2022.
At the same time, the entities indicated that credit standards for mortgages remained unchanged in the third quarter, after having anticipated a slight net tightening (2%) in the previous period.
However, looking ahead to the fourth quarter of 2026, banks are contemplating a significant tightening of lending criteria for housing (10%), driven, among the four largest economies in the euro area, by French, Spanish, and Italian entities, while German banks expect their requirements to remain unchanged.
In parallel, eurozone banks recorded a strong net tightening of the specific terms and conditions of mortgage loans, with an increase of 16%, four times more than in the previous quarter and the most intense since the third quarter of 2023.
In this context, the increase in interest rates was the main element behind the rise in restrictions, while the reduction of margins in medium loans acted as a moderating factor.
Likewise, the entities noted a new net increase in the proportion of denied mortgage applications during the third quarter, with a rise of 5%, above the historical average of 4% observed since 2015.
Corporate Loans
Regarding corporate financing, the ECB survey shows that banks in the euro area applied an additional net tightening of the criteria for granting loans or lines of credit to companies during the third quarter of 2026, with a 9% increase in restrictions, above what the sector anticipated (5%).
The greater perception of risk and the lower risk tolerance by the entities continued to be the main elements explaining the tightening of requirements for corporate credit. Additionally, some banks pointed to increasing pressure arising from geopolitical uncertainty and the evolution of the energy market.
At the same time, eurozone entities recorded a net decline in demand for financing from companies (-6), in contrast to the previous forecast of an increase (4%) following the rebound observed in the second quarter (3%).
According to the surveyed banks, the demand for corporate loans was mainly constrained by the general level of interest rates, while the lower demand for fixed investment from SMEs and the shift towards alternative sources of financing also contributed, although in a more limited way, to reducing the need for bank credit.
In addition, some entities indicated that the uncertainty surrounding the geopolitical and energy situation continued to hinder the demand for loans from companies.
For the fourth quarter of 2026, banks expect a new tightening of the credit standards applied to companies.