Mortgages to weigh on euro zone consumption until 2030, ECB says

FRANKFURT (Reuters) -Rising mortgage payments will weigh on consumption in the euro zone for another five years despite a streak of interest rate cuts by the European Central Bank, an ECB study showed on Wednesday.

The ECB cut borrowing costs for the eighth time in a year this month, seeking to take the brakes off a sluggish euro zone economy. Its key rate is currently 2%.

But mortgage borrowers will be paying a price for the ECB's past fight against high inflation, which saw it jack up that rate from -0.5% to 4.0% in just over a year, until 2030, according to the ECB study.

This is because a growing share of home loans that had a fixed interest rate at first will reset at a higher level of borrowing costs, resulting in larger monthly payments.

"Other things being equal, this should further dampen consumption through rising mortgage payments, despite the ongoing easing cycle," the study's authors said.

They estimated the ECB's recent rate hikes would take 1 percentage point off consumption growth between 2022 and 2030, with around a third of that effect still to come.

The effect will be stronger for poorer households, who tend to have floating-rate mortgages.

One in four euro zone households has a home loan. One in 10 of those will have its rate reset in the next three years and 20% by 2030.

Floating rate mortgages are prevalent in Spain and, to a lesser extent, Italy, while French and German borrowers are more likely to secure a fixed rate for some time.

The proportion of mortgages with a fixed rate generally rose after the global financial crisis of 2008-9 saw many households struggle to make their monthly payments.

This has muted the immediate effect of ECB rate hikes but it has made it more drawn out.

(Editing by Alison Williams)