On Thursday, the European Central Bank lowered its key interest rate from 3.75 to 3.5 percent. This move had been expected by the financial sector, but the interest rate cut is a positive signal for the economy. When the economy is sluggish or even stagnating, as is currently the case, interest rate cuts are a tool to stimulate economic growth again. Lower interest rates make loans cheaper – which benefits both companies and consumers. But how exactly are the financing conditions changing? And what does that mean for savers who want to receive the highest possible interest on their parked money? The “Kölner Stadt-Anzeiger” asked real estate specialists and credit institutions in the region.
Interest rate cut is comparatively low
When the base rate falls, it is cheaper for banks to borrow money – so they are less dependent on people parking their money in call money and fixed-term accounts. This is why savers get less interest – at least in theory. In practice, however, things are different. The “Kölner Stadt-Anzeiger” asked financial institutions in the region how much interest they are currently getting for call money and the like. And the conclusion is: very little is happening. “We assume that customers will hardly or not at all feel the latest interest rate cut,” says Steffen Pörner, Managing Director of the North Rhine-Westphalia Banks Association. This association brings together the state’s private banks, i.e. all those that are not cooperative banks or public institutions. The reason: the ECB has only lowered the base rate by 0.25 percentage points, in banking jargon this is called “25 basis points”.
How do the region’s banks specifically deal with interest rate cuts on savings and time deposits? “We regularly adjust our interest rates to market developments and will continue to do so after yesterday’s interest rate decision by the European Central Bank. Until then, the interest rates for the products you have listed will remain unchanged,” said market leader Deutsche Bank when asked. Commerzbank made a similar statement: “We closely monitor developments on the market and are constantly reviewing the product design and interest rates on our products,” said a spokeswoman. So no changes either, the standard overnight interest rate remains at 0.75 percent, there is three percent for new money, and the savings interest rate is 0.5 percent.
We constantly review our interest rates
Spokeswoman for Commerzbank
Kreissparkasse Köln does not plan to cut interest rates
The Kreissparkasse Köln says it is not planning any interest rate cuts. The public institution recently introduced a purely digital savings book, which currently offers two percent interest up to 100,000 euros, and one percent above that. The cooperative Sparda-Bank West will only adjust the interest rate for a term of one year from 2.5 percent to 2.3 percent from Monday onwards. All other investment products will remain unchanged.
The cooperative PSD-Bank West is cautious: “In the past, key interest rate cuts were often ‘priced in’ by market participants before the ECB Council meeting. For this reason, we are monitoring market developments very closely in the coming days and will only then decide on possible interest rate adjustments,” they said when asked.
Interest rate cuts in construction interest rates already priced in
While interest rate cuts are generally not good news for savers, property buyers are all the more pleased. Commercial banks can now borrow money from the central bank at an interest rate of 3.65 percent – before the interest rate cut it was 4.25 percent. This main refinancing rate has a direct impact on construction interest rates, because banks pass the costs on to their customers.
But here too, the financial institutions are already factoring in the expected interest rate cut in advance, similar to the conditions for savings accounts. This means that interest rates for building finance had already fallen significantly in August. According to financing specialist Interhyp, borrowers with a ten-year fixed interest rate had to expect interest of around 3.75 percent in June and July. In August, the figure went down rapidly, and interest rates are currently at 3.35 percent, according to data from Interhyp.
According to PSD-Bank, short-term key interest rates have little influence on long-term construction interest rates. Steffen Pörner from the banking association and the spokeswoman for Commerzbank also see it this way. Sparda-Bank has already reduced construction interest rates to 2.95 percent, which is below the three percent mark, but only with a loan-to-value ratio of 60 percent, i.e. with 40 percent equity from the home buyer.
Higher purchase prices become more affordable
Little to nothing will happen now as a result of the ECB’s decision. “The market was expecting the ECB to cut interest rates. Long-term construction interest rates have already fallen in recent weeks, and the interest rate decision has now confirmed this trend,” says Dominik Rüger, financing expert at JLL Germany. “Even if the interest rate increase is relatively small, it will of course have a positive impact on the real estate market. The lower costs of real estate financing will make higher purchase prices affordable. This should boost demand for real estate,” says Rüger.
