ECB Holds Steady on Interest Rates, Boosting appeal of Variable Mortgages
FRANKFURT – Teh European Central Bank (ECB) is expected to maintain its key interest rate at 2% at its September 11 meeting, marking the second consecutive hold after a series of cuts totaling 200 basis points between June 2023 and June 2024. This decision comes as inflation stabilizes near the ECB’s target and unemployment remains at historic lows, signaling a “soft landing” for the Eurozone economy, according to economists.
The pause in rate reductions is shifting the financial landscape,making variable-rate mortgages increasingly attractive to borrowers. Currently,the average interest rate for a 20- and 30-year variable mortgage stands at 2.71%, a decrease of 150 basis points compared to 4.14% twelve months ago.For a €150,000 loan, this translates to a monthly savings of €110 – a drop from €920 to €810 – and a total cost reduction of approximately €26,500 over the mortgage’s lifetime compared to rates a year prior.
While variable rates are becoming more competitive, fixed-rate mortgages have seen a slight uptick, rising from 3.15% in July to 3.23% in August. This means the same €150,000 loan with a fixed rate would carry a monthly installment of €849, €39 more than the variable option, and a total cost exceeding €9,356 over the loan’s duration.
“The ECB has finished its cycle of cuts and will now remain firm for a while… at the moment there is no pressure for further loosening,” stated Claus Viefers, lead Eurozone economist at Pantheon Macroeconomics. “Inflation is now close to the objective and unemployment is still at historic lows. It is indeed a soft landing.In such a context, it is indeed wholly natural that the central bank is able to take the chance to take a break and wait.”
Inflation in August edged up to 2.1%, but forecasts suggest it will remain around this level at least until 2028. This stability, coupled with the ECB’s anticipated rate pause, positions variable mortgages as a potentially advantageous option for borrowers in the current economic climate.