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financial conditions have continued to be tightened up. However, the increases in official interest rates which have taken place since the end of 2005 are affecting European economies in different ways. Although the countries in the euro zone have a common monetary policy, the pass-through of official interest rates to the interest rates on bank transactions is a process which involves different types of factors. One of the most important of these is the structure of mortgage rates. Thus, countries where floating rates predominate are much more sensitive to the behaviour of short rates, which implies that they are much more affected by the tone of monetary policy than mortgage systems where fixed rates are more common. In addition, as indicated in a recent study conducted by the ECB2 , there are other important aspects that explain the speed of this pass-through, amongst which the ECB emphasizes the degree of competition existing in the banking sector.
Chart 4.6 shows the increase in mortgage rates in different European countries from the minimum observed in June 2005 and April 2006. Thus, as compared to an increase of 75 p.p. in the ECB's official rate, the mortgage rate in the EMU has only risen by 40 b.p. The time taken to include new monetary conditions in the cost of lending and the remuneration of deposits is well-known in economic literature. This phenomenon is even more evident if we consider that market interest rates, such as 12-month Euribor, to which a good part of mortgages are indexed in some countries such as Spain, rose by 112 b.p. during the period. Moreover, as the empirical studies show, there is a wide divergence between countries as a result of the effects of the structure and competitive environment of the mortgage market mentioned earlier. Thus, as the chart shows, the increases in mortgage rates on new transactions in the period considered ranged between Finland's 66 b.p. and France's 7 b.p. Within this range, with an increase of 61 b.p., Spain is one of the countries which is passing the increases in interest rates on to the new mortgages contracted to the greatest extent.
Mortgage growth in Spain remains at around 24%
In Spain, credit granted to the private sector (including off-balance-sheet lending through securitization) continued to speed up to reach over 22% in April. Non-mortgage lending is acquiring increasing importance in this performance; it has clearly accelerated since the second half of last year. However, loans for house purchase continued to be the main reason for the growth of household lending, since nearly three of every four euros of funding that banks grant households go to this end.
In the early months of 2006, loans for house purchase maintained a growth rate of nearly 24%, in line with the performance this variable has registered since 2004. According to the INE (National Institute of Statistics), the amount of mortgages granted for housing in the first four months of the year performed even more dynamically, since it rose by around 2 p.p. to 26.9%. The buoyancy of the mortgage business is the result of a quantity effect and a price effect. In other words, market dynamism stemmed from the combination of an increase in the number of new transactions (+11.5% with respect to the previous year) and the larger amount of the average mortgage granted, which has increased by 1.7 p.p. so far this year to reach
2 Kok Sorensen, C., T. Werner (2006) Bank interest rate pass-through in the euro area: A cross country comparison. ECB Working paper series n° 580/January 2006

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