ECB rates: a pause at last!

A first in eighteen months. The European Central Bank has decided not to raise its key interest rates. A welcome pause for prospective property buyers.

The Governing Council of the European Central Bank decided at its latest meeting not to raise its key rates. In detail, that means the status quo for the deposit rate, which had been raised in September to 4% — a level never reached since the launch of the single currency in 1999. But it also concerns the refinancing rate and the marginal lending rate, which therefore remain at 4.50% and 4.75% respectively.

As far as the property sector is concerned, it is the refinancing rate that is watched most closely: it is the rate the banks must pay when they borrow money from the ECB. And the higher it is, the more those same banks pass the variations on to the loans they grant to prospective buyers. This refinancing rate, which stood at just 0.05% in 2014 and had reached only 0.5% by September 2022, has since undergone ten consecutive increases! That goes a long way to explaining the property crisis the Grand Duchy and Europe have been going through for several half-years now…

“We consider that rates are at sufficiently high levels and should remain at those levels in order to reach our inflation target,” explained ECB President Christine Lagarde. What the future holds remains to be seen: “A discussion about a cut is completely premature at this stage. We must be steady and hold firm, that is the decision we took today,” Ms Lagarde further noted. Should energy prices and the geopolitical situation (Ukraine, the Middle East) once again drive prices up (and therefore inflation), the ECB could revisit its position… and set rates higher again in the coming months. For now, however, the aim is at least to stay at this level. And therefore for the pause to last a while. Something the economist Bastien Drut sums up in his own way in Capital magazine: “In the euro area, it is clear that bank lending has slowed very sharply because of the rise in interest rates, which will weigh on activity, and the ECB can now afford to wait for that to weigh a little more on inflation.”

The immediate consequence, for families wishing to start a property project, is greater visibility in the short and medium term. And, through seasoned specialists, the chance to negotiate as well as possible with the banks to finance their purchase. Indeed, some banks are already beginning to revise their rates downwards to encourage the recovery… The same goes for anyone wishing to renegotiate a loan.

Waiting for a cut (in ECB rates) is in fact still too uncertain, as the daily La Tribune noted recently: “The big question is now no longer that of future increases but that of how long historically high rates will be maintained. The Frankfurt institution could indeed remain ‘on hold until at least mid-2024’, said Frederik Ducrozet, chief economist at Pictet Wealth Management, in September. Given the resilience of inflation, other analysts are counting on a cut at the end of 2024 or even the beginning of 2025.”

In this delicate environment, do not hesitate to contact the LuxKredit agency for professional, personalised support from experts and access to the best offers on the market.