More fixed-rate mortages have helped insulate countries from higher rates

International Monetary Fund report includes research on why higher rates affect countries differently

On the whole the impact of higher interest rates on economic growth has been more muted than most expected but some countries have “felt the pinch” more than others.

Part of the explanation is that tighter monetary policy (higher interest rates) transmits differently depending on local mortgage and housing markets.

Countries where fixed-rate mortgages are more common or where homebuyers are less in debt are typically more insulated from higher borrowing costs hence some countries have performed better than others in recent months.

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This was the gist of a piece of research, Feeling the Pinch? Tracing the Effects of Monetary Policy through Housing Markets included in the latest economic outlook from the International Monetary Fund (IMF), which was published ahead of the full report due out later today.


The share of fixed-rate mortgages across countries can vary from close to zero in South Africa to more than 95 per cent in Mexico or the United States, the research noted.

In Ireland, the share of fixed-rate mortgages (defined as ones where nominal repayments do not reset within a year) was put at about 50 per cent. Fixed-rate mortgages have become more prevalent here since the financial crisis.

“Our results indicate that monetary policy has greater effects on activity in countries where the share of fixed-rate mortgages is low. This is due to homeowners seeing their monthly payments rise with monetary policy rates if their mortgage rates adjust,” noted an IMF blog explaining the research.

“By contrast, households with fixed-rate mortgages will not see any immediate difference in their monthly payments when policy rates change,” it said.

Of course, there are multiple factors driving headline growth in various economies but US growth despite the monetary tightening has been stronger than expected.

The report also noted household debt ratios (since the financial crisis) have increased in some countries, notably Chile, France and Korea but fell in others, such as Denmark, Ireland and Spain.