Euro zone mortgage demand falls as rates rise, ECB survey shows

FRANKFURT, Oct 27 (Reuters) - Demand for mortgages in the euro zone fell sharply in three months to September as interest rates rose and credit became harder to get, a European Central Bank poll showed on Tuesday.

The ECB's quarterly Bank Lending Survey showed the tangible impact of the ECB's policy tightening, which started in June and is expected to continue for months, in response to a war-driven surge in euro zone inflation.

A net 27% of banks reported a decrease in demand for housing loans in the third quarter of the year, a more pronounced decline than lenders had expected (-12%) and than they had reported in the previous three months (-15%).

"Increases in interest rates were the main driver of the decline, followed by falling consumer confidence and worsening housing market prospects," the ECB said in a press release.

Banks did not raise the bar for granting mortgages during the quarter although they did so for corporate loans and consumer credit. They expect to tighten standards for all types of lending in the last three months of the year.

France, which is at the centre of bond market turmoil over its public finances, was the large European country where such tightening was most pronounced.

"Heightened risk perceptions and banks’ reduced risk tolerance remained the main drivers of tighter credit standards, with some banks reporting increasing pressure as a result of geopolitical uncertainty and energy developments," the ECB said.

Asked about artificial intelligence, most banks reported they had not yet introduced quantitative criteria for assessing AI-related lending, with only a small number saying this increasingly featured in their qualitative assessment.

(Reporting by Francesco CanepaEditing by Keith Weir)