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Fitch – Rate cut will not relieve households before 2025

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He stresses that he does not expect a return to “very low interest rates”

μεσεκων θα νκοφσι νοικυριπριν ;ο 2025

It does not expect an “immediate improvement” in the burden experienced by over-indebted households to service the interest on their loans before 2025 at the earliest, even when central banks begin to reduce policy rates, warns Fitch Ratings, while stressing that it does not expect a return to “very low interest rates”.

Furthermore, the US house expects that in some countries, the interest servicing burden will increase within 2025, stating that expects another increase to come in the UK.

In a report titled “Household relief from interest rates will be slow even if central banks cut rates,” Fitch says that rising policy rates have pushed up borrowing costs over the past two years, noting, however , that there are differences between countries, which mainly reflect the differences that exist per country in the mortgage markets. 

Where long-term fixed-rate loans dominate, such as in the US, Germany and France, households have been quite protected from rising interest rates, he points out.

On the contrary, he says that in countries that have a greater share of floating-rate loans, such as Australia or Spain, or with shorter maturities, such as the United Kingdom and Canada, the real interest rate rose more sharply, increasing the burden of interest servicing on households.

Fitch also says that central bankers are likely to start cutting interest rates later in 2024.

“Our forecasts suggest that household interest service burdens are near their peak in some developed markets such as Australia, Italy and Spain,” he says, adding, however, that in other countries, including the U.S., “the adjustment to higher interest rates is just beginning.” 

According to the US house, “the UK looks vulnerable as a large number of short-term, fixed-rate mortgages reset in 2024 to significantly higher rates”.

“We see the UK household interest burden rising to 6.5% of income by the end of this year, from 4.0% at the end of 2023,” said Jessica Hinds, director by Fitch Ratings.

Fitch says it does not expect a return to ultra-low interest rates, and as a result, over-indebted households will pay more in interest, as a percentage of income, than in the past, he notes.

“While this should be manageable, rising debt servicing costs are a drag on consumer spending and are likely to remain after the start of relaxation by the policy makers”, he concludes.

Source: www.kathimerini.com.cy

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