Demand for home loans in the eurozone has fallen far more sharply than lenders expected, according to the European Central Bank’s latest bank lending survey, published on October 27. A net 27 per cent of banks reported weaker mortgage demand in the third quarter of 2026, after a net 15 per cent in the previous three months.
That was more than double the fall banks had forecast three months earlier, which stood at a net 12 per cent. The ECB said higher interest rates were the main driver, followed by falling consumer confidence and worsening housing market prospects.
The survey covered 159 banks and was carried out between September 21 and October 6, with every lender responding. The results are net balances, meaning the share of banks reporting a fall minus the share reporting a rise.
Those banks now expect a net 36 per cent decline in mortgage demand in the fourth quarter. They also expect to tighten their criteria for house purchase loans significantly over the same period, having left those criteria unchanged in the third quarter.
The squeeze extends well beyond households. Credit standards for company loans tightened by a net 9 per cent, more than banks had anticipated, while those for consumer credit tightened by a net 14 per cent.
Corporate borrowing weakened too, with a net 6 per cent of banks reporting lower demand for business loans. That confounded expectations of a net 4 per cent increase and reversed a modest rise in the second quarter.
Demand for consumer credit slipped by a net 2 per cent, against expectations that it would hold steady. Banks expect it to drop by a net 14 per cent in the final three months of the year, with corporate demand roughly flat.
Rejection rates climbed for every category of borrower, with the sharpest increase in consumer credit. Access to retail funding deteriorated further, the worst reading since the series began in 2011, and banks also reported more difficulty raising money on debt securities and money markets. They expect every one of those funding sources to become harder to tap again in the fourth quarter.
The figures are the clearest sign yet of how far the ECB’s change of course this year has reached into household balance sheets. The bank raised rates on June 11, its first increase in three years, then again on September 10, taking the deposit rate to 2.5 per cent.
Both moves were a response to an energy shock that pushed eurozone inflation to 3.3 per cent in August, the highest since September 2023. Energy prices rose 14.3 per cent over the year, though core inflation eased to 2.4 per cent.
The survey lands two days before the Governing Council meets in Frankfurt on October 28 and 29. Economists polled by Bloomberg expect no move at that meeting and a further increase in December.
What the tightening has not done is make housing cheaper. House prices in the euro area rose 4 per cent in the year to the second quarter of 2026, and by 1.1 per cent on the previous three months, according to Eurostat. Across the European Union the annual increase was 4.7 per cent.
The rises were steepest in Portugal, at 16.5 per cent, followed by Bulgaria on 15.5 per cent and Lithuania on 14.3 per cent. Only Finland, Luxembourg and France recorded falls.
Buyers are being pressed from both directions, with credit harder to obtain and prices still climbing. The ECB said the drop in demand was nonetheless “well below the peak recorded during the previous rate hiking cycle”.
One corner of the market is moving the other way. Several banks said they expected a gradual but sustained rise in lending to finance digital infrastructure, above all data centres.
Money linked to artificial intelligence is aimed at infrastructure providers rather than software developers or the firms adopting the technology, the survey found. Most lenders have yet to set numerical criteria for such loans and judge them case by case, with IT firms examined most closely.
The credit squeeze arrives as the European Union struggles with a housing crisis it has been promising to address for years. The European Commission created a housing portfolio for the first time in its current term, handing it to Energy and Housing Commissioner Dan Jørgensen, and published its European Affordable Housing Plan in December 2025.
Housing ministers are due to meet informally in Dublin on November 25 and 26, under the Irish presidency of the Council of the European Union, to work on a Council recommendation against housing exclusion. The meeting was scheduled in April.
Housing policy remains largely a national competence, which leaves Brussels with funding and coordination while borrowing costs do the work.
