If the European Central Bank (ECB) decides to lower EURIBOR rates, it will increase residents’ range of choice on the housing market, comments Janis Mūrnieks, Head of the Private Services Directorate of Citadele Bank.
There are three meetings left until the end of the year during which ECB may decide on changes to interest rates. The financial market expects base interest rate to go down by 0.25 percentage points. A similar scenario could repeat in October and December. If this happens, EURIBOR six-month rate could drop to 2.8% from 3.45% by the end of the year.
According to Mūrnieks, is ECB decides to lower the interest rate by the end of the year, it will affect the housing market in multiple aspects.
“First of all, any change to the rate means residents will be able to apply to bigger loan amounts,” said Mūrnieks.
Counting from the highest point of EURIBOR in mid-October 2023 and assuming that interest rates could be lowered three times by the end of the year, the possible load amount may increase by as much as 10%. As a result, residents will have more choice and the availability of new projects, private houses and housing in general will increase.
At the same time, the mortgage payment depends on the amount and term of the agreement, the method of monthly payment and the date of rate fixation. Taking the data on the average home loan agreement as an example this year – if the monthly home loan payment currently amounts to about 500 euros and the total amount of the agreement is slightly above 80 000 euros, then the decrease in the EURIBOR rate by 0.75 percentage points could mean a monthly payment of about 30 euros less.
“Every situation needs to be reviewed individually – for example, if the monthly payment is well over 500 euros, but the term of the contract is longer than 25 years, then the amount of the payment will drop more,” says Mūrnieks.
He stresses that EURIBOR rates have been in a steady downturn since October last year. This means that most customers have already experienced the first monthly payment reduction.
“This is important because residents see with their own eyes that the interest payment is getting smaller and it has both a practical and psychological impact,” says Mūrnieks. This gives households additional flexibility in spending planning and signals to the market, including future property buyers, that the highest monthly payment point in the foreseeable future could be behind them.