PressSplit
The ECB in Frankfurt made an important decision on Thursday. © Imago
The ECB has lowered its key interest rate by 0.25 percent. Economists hope for an economic recovery soon. Consumers can benefit from these changes.
Frankfurt – The European Central Bank (ECB) cut its key interest rate by 0.25 percentage points to 3.5 percent on Thursday (September 12). This is the second interest rate cut in the euro zone since June. The ECB’s decision was made in response to falling inflation rates. Economists hope that the interest rate cut will give the German economy a little boost.
Germany’s gross domestic product (GDP) fell slightly in the last quarter, partly due to weak demand and lower consumer spending. But this development is also interesting for consumers, especially for property buyers, as experts say an “interesting window of opportunity” is now opening.
ECB cuts interest rates – interest rates will probably fall again in 2025
Since June 2022, the key interest rate in the euro area has risen continuously – from an initial minus 0.5 percent to a peak of four percent in September 2023. This increase was caused by rising inflation rates, fueled, among other things, by high energy prices following the Russian invasion of Ukraine.
But now a turnaround in interest rates is emerging: the key interest rate was already cut to 3.75 percent in June and most recently to 3.5 percent on Thursday. According to ECB President Christine Lagarde, interest rates are expected to continue to fall, but the exact extent and timing of these cuts are still unclear. Deutsche Bank predicts that key interest rates could be between 2.0 and 2.5 percent in 2025.
An “interesting window of opportunity” for buying property – how households benefit from the interest rate cut
The interest rate at which banks can borrow money from the ECB was also reduced from 4.25 percent to 3.65 percent. This measure aims to reduce the difference to the base rate and to stabilize interest rate fluctuations in the short term, which gives banks more planning security. This could lead to more favorable credit conditions for households and lower mortgage interest rates. Nevertheless, mortgage interest rates are generally more geared to capital market returns than to the base rate. However, a trend reversal is already visible: for the first time since the beginning of the year, construction interest rates for a ten-year term with good creditworthiness are below three percent, as Oliver Kohnen from Baufi 24 in Business Insider reported.
Kohnen explains that an “interesting window of opportunity” is currently opening up for property buyers. Anyone who took out a loan in July or August paid an average of around 3.2 percent – less than the 3.5 percent that was often charged previously. Borrowers with very good ratings can get even better terms of less than three percent. Kohnen points out that interest rates may not fall any further and that property prices are already rising again. Buyers could therefore benefit from the currently low loan interest rates.
From saver losses to US economic forecasts: The comprehensive impact of interest rate cuts
For savers and people who have to repay loans, the situation is different. Savings rates have already been reduced and are still on a downward trend. This could make consumers more inclined to spend, which could increase demand and potentially boost the German economy. For existing loans, however, the interest rate will only fall slowly, as banks tend to increase their loan rates quickly when market rates rise, but reduce them more slowly when rates fall. For some borrowers, it might therefore make sense to replace their existing loan with a new, cheaper loan.
In the US, too, the key interest rate has kept economists busy, as the stagnating economy is seen as a consequence. The interest rate in the US is currently at 5.25 percent, a high since July 2023. However, the interest rate is expected to be cut next week, with analysts forecasting a medium-term reduction to 3.75 percent. This development could have an impact not only on the US economy, but also on politics. Former President Donald Trump hopes that there will be no further interest rate cut, as many Americans currently support the Democrats, including Vice President Kamala Harriswho are blaming the country’s economic problems. Lowering the key interest rate would therefore primarily benefit the Democrats.