Variable interest rate housing loans return in Croatia, central bank warns consumers

Banks in Croatia are shifting back towards offering housing loans with variable interest rates, a move that follows a nearly two-year period dominated by fixed-rate options. This change has prompted a warning from the Croatian National Bank (HNB) regarding potential risks for consumers.

In the first four months of the year, approximately 6,900 new housing loans were issued, with an average value of around 180,000 euros. While fixed-rate loans still constitute the majority of new lending, the HNB notes a significant increase in loans tied to the Euribor rate, which now accounts for about 12% of new placements. This marks a sharp rise from its nearly negligible level in the preceding two years.

The HNB cautions that non-fixed loans carry the risk of fluctuating monthly payments over extended repayment periods. For instance, a hypothetical loan of 150,000 euros over 25 years could see monthly installments rise from approximately 703 euros at a 2.9% interest rate to about 783 euros at 3.9%. This difference could increase the total interest cost by roughly 24,000 euros over the loan's lifetime.

This strategic shift by banks is partly driven by a desire to reduce their own hedging costs. As market interest rates fluctuated, particularly after the fall in Euribor, the cost of financial instruments used to manage interest rate risk, such as interest rate swaps, became a significant expense for banks, amounting to tens of millions of euros annually.

The HNB advises potential borrowers to carefully review loan terms and explore options from different banks if they are not satisfied with their current offers. The central bank emphasizes that combined interest rate loans, which feature a fixed rate for an initial period before switching to a variable rate, do not eliminate interest rate risk but merely postpone it.

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Non-fixed loans carry the risk of changing monthly installments during a long repayment period.