The European Central Bank (ECB) has warned that homeowners across the eurozone will continue to feel the weight of rising mortgage costs until the end of this decade. Despite the gradual reduction in interest rates in recent months, many people who took out home loans when borrowing was cheap - during the era of low and negative interest rates - will soon have to refinance their loans.

The ECB pointed out that a significant number of these home loans, initially locked in at attractive rates, are set to be revalued at higher levels in the next few years. This refinancing burden will likely slow household spending and savings, causing what the ECB describes as a ?consumption hold-up? that will last until at least 2030.

Data from an ECB survey on consumer expectations shows that almost half of homeowners in the eurozone have already reduced their spending or savings over the past year. They have either been reacting to or preparing for the impact of rising mortgage repayments. Many of these homeowners expect to continue cutting back on consumption in the year ahead.

In response to surging inflation at the end of 2021, the ECB rapidly raised interest rates from -0.5% to 4% between 2022 and 2023. Since June 2024, the central bank has been slowly lowering these high rates, bringing the main deposit rate down to 2.25% as of April. Markets are anticipating two or possibly three further cuts of 0.25 percentage points by the end of this year. However, the ECB's latest analysis suggests that average mortgage rates across the region will continue to edge up for some time.

The structure of Europe's mortgage markets means that relief from these falling rates will take time to reach most homeowners. In the eurozone, three-quarters of private homebuyers fix their mortgage rates for several years. In France, over 40% of mortgages have fixed rates for more than a decade, while most of the remainder are locked in for three to ten years. Similar patterns are seen in Germany, whereas in Spain and Italy, floating-rate loans are more common.

As older, low-interest loans are gradually paid off, they are being replaced by new borrowers who face higher borrowing costs. This generational shift in home loans will keep financial pressure on many families, even as official rates start to come down. It is a complex landscape that will see eurozone households grappling with the delayed effects of past policies and a new era of costlier borrowing.