For the second time in a row, the European Central Bank (ECB) has lowered official interest rates. He government council has agreed to a decrease in the price of money to 3.25%, continuing with the relaxation of monetary policy. This decision will have an impact on mortgages, credit and deposits.
On the one hand, when the monetary institution lowers rates, it is expected that mortgages and credits In general, they experience a decrease in interest, both on outstanding loans that are at a variable rate and on new ones. On the other hand, this also affects what the banks pay for the deposits to your clients.
Going into detail, in the case of mortgages, rate cuts have an impact through the decrease in the Euribor, which is the interest at which banks lend to each other and is used as the majority reference for housing loans in Spain. If rates go down, so does the Euribor, although with nuances.
He euribor It usually anticipates monetary policy decisions. Thus, the Euribor has already discounted this drop in recent weeks and is at an average so far in October of just under 2.8%, when a year ago it was at 4.16%.
An average mortgage of 150,000 euros for 25 years and at an interest rate of Euribor plus 1% differential had a payment of 890.92 euros per month according to how the index was in October 2023. That same loan but with the average that the Euribor this October 2024 would have an average payment of about 772 euros per month. This is equivalent to about 119 euros less from one year to the next thanks to the drop in the Euribor, driven by the drop in rates.
Likewise, it is also expected that banks will adapt their offer of new mortgages to the changing environment of ECB rates, that is, that entities will make their new home loans cheaper, especially those that are at a fixed rate. Analysts even expect that this last quarter we will already see fixed rate mortgages below 3%.
«Going into debt to invest in housing is becoming cheaper. The Euribor, which is the index to which most Spanish variable mortgages are referenced, closed September below 3%, something that has not happened since the end of 2022. This week, the Euribor has remained below 2.8 % and there is already talk of a mortgage war to win clients,” they indicate from Helpmycash.
This same dynamic should also be felt in all loans (consumer, for companies, etc.), since if rates fall, banks also make their loan offer cheaper as a whole.
From the deposits side, the impact of the rate cuts is also noticeable. «Banks are cutting the profitability of their savings products and also the price of their mortgages,” they point out from the aforementioned comparator, which recalls that “during the first fortnight of October, at least 14 banks have reduced the profitability of their deposits and accounts.”
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