The Minister of National Economy and Finance called on the banks to keep “frozen” interest rates on mortgage loans after May, when the support program ends. It is recalled that informed borrowers are under protection (from May 2023) after the banks’ decision to “freeze” mortgage interest rates in consultation with the government for one year.
What applies to informed mortgages
This is the measure taken by the banks (voluntarily) in Greece last spring and provides for a “freeze” of the loan installment at the levels of 2.7% (for loans with a reference interest rate of Euribor 1) and at 2.85% (for loans with a reference interest rate of 3 months Euribor).
The emergency measure automatically included loans with a total value of 18-20 billion euros taken out by half a million borrowers.
However, before Kostis Hatzidakis’ exhortations, the banks were already considering the continuation of the program from December. According to “OT” information, the discussions between the two sides (financial staff-banks) have almost come to fruition, with the banks appearing determined to continue the program of reduced interest rates.
The role of SSM
Nevertheless, the final say on whether or not to continue the program rests with the European supervisory authorities, specifically the SSM.
So the extension of the program is on the table, but it also needs the “stamp” from the supervisory authorities. It is recalled that even in the first phase of the program, after the consultation between the banks and the government, the “green light” was given by the SSM.
Interest rates
The duration of the new program is expected to be 12 months. What determines the length of the extension depends mainly on the speed of the ECB’s interest rate de-escalation – most likely after the second half of 2024.
The strongest scenario, however, is to maintain the program until the end of 2024. It is estimated that by then the 3-month euribor (reference rate for most loans) will fall below 3%.
However, if interest rates begin to fall in the summer, the extension of the program will help Greek borrowers avoid being burdened by higher interest rates, even for a short period of time.
As the reductions will be gradual, it may take until next December for the ECB interest rate to reach the same level as the frozen mortgage rates in Greece.
Analysts and traders “see” total reductions of 150 basis points in 2024 which will take the deposit rate from 4% to 2.5% and the main refinancing rate from 4.5% which is currently 3%. Under this scenario, the ECB interest rate will be higher than the “frozen” interest rate enjoyed by Greek borrowers.
Thus, if the ECB interest rate or, respectively, the euribor, which is the basis for calculating mortgage loans, is brought to 3%-3.50%, the benefit for borrowers will continue, provided of course that the support program is extended.
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