Interest Rate Cuts: How the ECB’s Policy Will Impact The Housing Market

It was an expected step, although perhaps not as soon since the European Central Bank had already decided to cut interest rates in September, the third time this year. With this new reduction in the price of money by 25 basis points, the official rate stands at 3.25%, at the levels of May 2023.

This interest rate cut accompanies the evolution of the Euribor. In effect, the reference index for mortgages seems to be consolidating its downward trend. It is good news for those who must review their mortgages in the coming weeks or buy a home.

How will the interest rate cut affect the real estate market?

Any decision by the ECB has repercussions on the real estate market. In this case, the interest rate cut that has already materialised, plus what we expect in the coming months, could boost the purchase and sale of housing.

The first major consequence of the interest rate cut will be reflected in the mortgage the banks offer. In fact, many of them have been making moves for some time now to offer more attractive products, especially regarding fixed and mixed-rate mortgages.

Demand boost

We expect this situation will lead to even more competitive mortgages. It's good news for those who were considering buying a house or waiting, and especially for those who had difficulty assuming the payments of a mortgage loan with high interest rates.

According to data from the National Institute of Statistics (INE), in July 2024, the number of mortgages in Spain was 23.5% higher year-on-year and 15% higher in monthly variation.

Housing prices

Under the current circumstances, the real estate market is a seller's market, meaning demand far exceeds supply. In this scenario, with better financing conditions, greater accessibility to housing and a higher number of potential clients, the logical consequence will be an increase in prices.

This increase in housing prices could become an obstacle to these more affordable mortgages. Analysts agree that it is necessary to increase the housing stock, especially public housing so that the imbalance in the real estate market does not become more pronounced.

Future forecasts

Despite everything, it is difficult to determine what will happen in the coming months. Everything depends, to a large extent, on the decisions taken by the ECB. In principle, analysts seem convinced that there will be a new interest rate cut in December 2024 and that throughout 2025, it could be low up to 2%.

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