Keys to understanding interest rate reductions

Why do interest rates rise and fall?

The ECB is tasked with keeping prices stable and interest rates (the cost of borrowing or the money the bank pays for your savings) is one of the tools to achieve this.

This way, if inflation is too high, the regulator has the power to raise rates. so that credit is more expensive. With, explainthe economy will cool, moderate inflation will be expected, and prices will decline.

For his part, if inflation is too low, it is possible to cut interest rates to make credit cheaper and encourage investment and consumptionwhich will increase prices.

How does it affect me?

In the words of iAhorro’s Mortgage Director, Simone Colombelli, “this fall will certainly improve the situation of the Spanish mortgage market a little.”

With this decision, he says, Lagarde gives the Euribor room to continue falling (It is currently at about 3%) and also to the banks so that they can reduce the interest rates of their mortgage offers“not taking too many risks that inflation will get out of control again.”

Will a mortgage go down?

Yes between the end of September and the beginning of Octoberparticularly reducing the interest payable on fixed and mixed mortgages.

“Right now a fixed mortgage could be around 2.5% and, over the next few weeks, we could start to see results already around 2.2% or even 2% TIN; in mixed mortgages they could be close to 1.5% NIR for the first years,” explained the director.

Therefore, those who have a variable mortgage will see an “immediate” effect from the reduction in interest rates, since most of them are referred to the Euribor. According to Fotocasa calculations, your mortgage payment will be reduced between 80 and 190 euros per month, which means reduction between 970 and 2,300 euros per year.

What will happen in the coming months?

“Eurozone inflation indicators and US FED cut forecasts suggest it could new descent on December 12th“, at the same time as the last meeting of the year,” of 0.25 percentage points or even 0.50 points,” they indicate from the estate portal.

With this new roadmap, banking groups will “offer more attractive mortgage conditions in the short term, creating a very beneficial situation for those home buyers who have been affected by rising interest rates in recent years .” As they count, up to 30% more customers They could try to work in search of a more favorable opportunity.

For this we need other incentives such as ICO guarantees or “the mortgage fight between banking groups to attract clients”, which Fotocasa believes will encourage “more than a purchase requestwhich will put more pressure on supply, so the housing price trend will continue to rise in 2024.”

So, is it a good time to apply for a mortgage?

“Actually, the drop in rates that we have seen, although it is attracting a lot of attention to us, has already been reduced in the financial markets. In our case, we expect interest rates to fall four times as much and, therefore, effectively. “We’re in a much better environment to go into debt.”says the head of Deutsche Bank’s investment center in Spain, Rosa Duce, in 24 Hours RNE.