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Interest Rates in 2025: What Is Expected to Happen, and How Will It Affect Housing?

Interest Rates in 2025 What Is Expected to Happen and How Will It Affect Housing - Interest Rates in 2025: What Is Expected to Happen, and How Will It Affect Housing?

The forecast for interest rates in 2025 is undeniably positive for the real estate market. The downward trend that started in 2024 is set to continue, and rates are expected to settle around 2% to 2.25% by the end of the year. This marks a significant decline from the peak of 4.5% reached in September 2023, where rates remained entrenched for several months.

Forecasts for 2025

The international political and economic situation, with a new president in the United States and a German economy in recession, means that the European Central Bank is cautious about its forecasts for 2025.

Nevertheless, experts expect four 25 basis point cuts in the price of money, even before the summer. There is even a possibility that the ECB could decide on a 50 basis point cut at its meeting on the 30th of January. However, we don't expect an increase in interest rates.

Impact of Interest Rate Cuts on the Real Estate Market

A reduction in interest rates will serve as a powerful catalyst for the real estate market, especially given the projected trends. As rates decline, the mortgage benchmark index will follow suit. Presently, the Euribor is approximately 2.5%, which is over one percentage point lower than it was just a year ago.

Forecasts are optimistic, projecting a continued decline in Euribor, potentially falling by one percentage point or more in 2025.

In any case, corrective factors such as geopolitical tensions, inflation trends and macroeconomic data should not be overlooked. These are issues that could slightly modify the forecasts.

Mortgage cuts

Given the forecast of a drop in interest rates in 2025, and with their evolution in the previous months, banks have not hesitated to move their pieces to attract clients with more competitive mortgages. Fixed-rate mortgages, in principle, will continue to be the most in demand, thanks to very attractive conditions. However, variable-rate mortgages could also benefit from the drop in the price of money.

What is a reality is that greater savings capacity, forecast price increases in the real estate sector and more competitive credit offers have triggered the signing of mortgages. The latest data published by the National Institute of Statistics (INE), corresponding to October 2024, reflected an increase in mortgages of almost 61% compared to the same month of the previous year.

Great time to buy and sell real estate

The forecast for interest rates in 2025 suggests it will be an excellent time for the real estate market, even though property prices continue to rise. Sellers can make the most of increased demand and prices by bringing their properties to market under favorable conditions. For buyers, lower interest rates mean more accessible housing options.

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