2024-09-13 17:01:15
“Small basket” should be kept by those repaying a mortgage loan as yesterday’s reduction of the ECB’s interest rate by 25 basis points is not expected to be felt in the pocket of the borrowers.
This is confirmed in “N” by sources in the banking industry who explain that, especially in the category of new mortgages, domestic banks have absorbed the successive increases suffered by Euribor from the summer of 2022 until today.
With regard to existing loans, it is recalled that those who are aware are under protection status until May 2025, as part of an extraordinary initiative by banks to protect consistent borrowers from rapid increases.
95% of the loans are fixed interest
However, almost all (95%) of the total loans disbursed in the country in recent years are fixed rate loans, as borrowers’ risk appetite has dissipated after the euro’s interest rate rally by 4.5 basis points in the last two years .
“The final (fixed rate) mortgage rate today has hardly changed since 2019, when interest rates were negative,” a competent banking source explains to “N”. And that’s because as interest rates rose, banks absorbed the increases in order to keep their products competitive.
Decline in demand
In the last two years, moreover, the demand for housing loans has suffered a significant decline, with the total production in the first 8 months of the year not exceeding 700 million euros. This means that, if the allocations made through the My Home scheme are excluded, demand has stagnated compared to 2023.
According to the same sources, mortgages that carry a fixed interest rate throughout the life of the loan are priced at a 4% interest rate, while the interest margin (spread) is around 2%. It is worth mentioning that banks’ profit margins have been squeezed further in the last year amid competition between banks in mortgage lending – especially after the success of the first “My Home” scheme.
In this context, credit institutions offer special programs for the acquisition of a first home by young people with special conditions (eg interest rate discounts), in order to bridge the high demand for a first home with the limited scope of the first “My Home” program. For example, a systemic bank offers an interest rate of up to 3% for a mortgage loan with a fixed interest rate in the first three years.
Mortgages: The ECB gives incentives to reduce interest rates
However, the reduction in mortgage rates becomes even more imperative following the European Central Bank’s 60 basis point reduction in the main refinancing rate, which is expected to lead to a significant reduction in interbank borrowing costs.
Implementing the announcements it has already made last spring, the ECB is reducing the spread between the interbank lending rate and the ECB deposit rate to 15 from 50 basis points that had been fixed since 2019.
With this reduction, the ECB essentially “scissors” the interest paid by European banks to secure liquidity from Frankfurt, paving the way for cheaper borrowing by the European banking system. Essentially, that is, the central bank today gives the commercial banks to proceed with more generous mortgage reductions in the context of the monetary easing that has started since last June.