NEWS

Bank of Greece eyes rate impact

With interest rates on an upward path, the Bank of Greece has warned banks to be more stringent in their lending policies as the higher cost of borrowing is squeezing household incomes and threatening to hurt property prices. Sources from the Bank of Greece, the country’s central bank, said that banks are continuing to offer home loans for amounts that exceed 75 percent of the property value despite warnings against this practice. Credit risks to banks may grow as higher interest rates also result in increased loan payments that eat into disposable income. According to data from the Bank of Greece, private sector disposable income has fallen to 1 percent from 6 percent in 2004. On Thursday, the European Central Bank (ECB) increased its benchmark interest rate to 3 percent from 2.75 percent and warned of further increases ahead. For mortgage holders who owe 150,000 euros, the monthly payment rose to 950 euros on Thursday, from 869 euros in December. Banks have mortgaged homes to the value of 56 billion euros, of which 2 billion euros concern home loans where the mortgage holder is having difficult meeting payments. Even though experts have been warning of a possible drop in property prices due to higher rates, a significant price correction is considered unlikely in Greece.