20 April 2023
Early indicator of borrower stress increases in line with interest rates
Direct debit rejections (DDRs) are the first indication of borrower stress that arise in our portfolio, and we can use them to predict levels of strain in the overall market. During the last six months of 2022, DDRs increased 7.85% across all our Spanish mortgage portfolios, a trend that correlates directly with increases in Euribor. By leveraging our rolling data, our analysis suggests there was an average monthly DDR increase of 0.6% for every ECB interest rate rise of 50bps in the second half of 2022. However, if rates continue to move higher the increase in DDRs is likely to be more exponential than linear.
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