What the ECB is doing on interest rates and what it means for those with a mortgage to pay

The European Central Bank has decided again Do not raise or lower interest rates. The message arrived yesterday, and many analysts now believe that the next ECB Governing Council meeting – scheduled for June 6, given that it meets every six weeks – will be the time for a downturn. In the meantime, the situation is improving slightly compared to a few months ago for those who have a variable rate mortgage or for those who need to apply for a new loan, but until the ECB officially cuts interest rates, it is uncertain that this drop in interest rates will Costs continue.

Where are interest rates today and how did we get there?

European interest rates are currently at their limits Historic high, after the Central Bank made ten consecutive increases between 2022 and 2023. In the last five meetings, there was always the decision to remain at the same level, without increases but also without cuts. For example, the main refinancing interest rate today is 4.5%, meaning that banks that borrow money from the ECB for a week (which happens constantly) have to pay 4.5% interest. Therefore, when those same banks extend a loan to citizens and companies who take out a mortgage, they tend to demand high interest rates and therefore rather expensive installments.

There are many different factors behind the ECB's decisions, but one factor is particularly important Inflation rateThat is, how quickly prices rise. In 2022, inflation in Europe rose significantly, also reaching levels not seen in Italy since the 1980s.

It is precisely for this reason that the European Central Bank has begun to do so Raise interest rates. In general, the idea is that the more money there is in circulation, the more inflation will accelerate. By raising interest rates, fewer people and fewer businesses apply for loans, so less money circulates and inflation slows.

Because the decline can start from June

This mechanism seems to have worked so far: in recent months Inflation fell significantlyWhether in Italy or in the eurozone. This is also why many expect that the first interest rate cut by the European Central Bank could occur in June. More updated data will arrive in June that will show how inflation is faring in Europe.

If it continues to decline (the goal is to get it back to around 2% in a short time), the opposite should happen. Christine Lagarde, President of the European Central Bank, also said that some governors – that is, the heads of national banks – were ready to cut interest rates yesterday, but the majority preferred to wait for further confirmation.

What changes for those who have a mortgage or need to get one?

It seems likely that the first cut will arrive in June also because such a high level of interest rates hurts two large segments of the population: businesses and people with A mortgage with a variable interest rateand who want to request a New loan. In fact, as mentioned, individual banks also rely on ECB rates to determine the interest they offer their clients.

In the past couple of years, those who had a variable interest rate mortgage have seen their payments grow steadily, and only recently may there have been an initial decline. The same applies to those who want to obtain a mortgage and take a look at the offers available, whether for fixed or variable rates. Only those who already had one were “saved.” Fixed rate mortgageand therefore was not subject to any changes in payments.

In recent months, some banks have begun to cut interest rates, precisely because the European Central Bank is expected to cut interest rates soon, even by a small percentage. From there, the gradual decline should begin until the end of the year. But for now, these are just predictions. The final answer will arrive on June 6th.