Housing borrowers will be underwhelmed

The ECB’s decision to cut interest rates has been highly anticipated, but those hoping for immediate rate reductions will be disappointed, as noted by Joonas Laitinen, head of HS’s financial services. The ECB lowered its key interest rates by 0.25 percentage points, leading to a moderate reaction in the interest rate market. Despite this cut, a rapid decrease in interest rates is not expected.

Mortgage debtors may see only a slight decrease in their monthly expenses as a result of the interest rate cut. The main interest rate, specifically the deposit rate of commercial banks, dropped from four percent to 3.75 percent. The 12-month Euribor, a commonly used reference interest rate by Finns, experienced a slight increase following the ECB’s decision. Derivatives predicting future interest rate movements also rose post-decision.

The slow decline in interest rates means that mortgage debtors may not see a significant impact on their finances immediately. While the direction of interest rates is downward, the decrease may not free up much more money for consumption. For example, a 0.38 percentage point decrease in the 12-month Euribor could result in a reduction of over 40 euros in monthly loan repayment and interest expenses for a 200,000-euro home loan.

Expectations for a rapid drop in interest rates have tempered, and the slow pace of decline could have wider economic implications. Private consumption may continue to stagnate as more funds are allocated towards housing expenses, impacting other sectors like restaurants and services. Those anticipating a more significant reduction in interest rates, especially due to personal circumstances like job changes or lower income, may be disappointed by the current trend.