The ECB cuts rates. What will be the effects for savers and investors? The Governing Council today decided to reduce the European Central Bank’s three key interest rates by 25 basis points. Therefore, the interest rates on deposit facilities, main refinancing operations and marginal lending operations will be reduced to 3.00%, 3.15% and 3.40%, respectively, with effect from 18 December 2024.
But how much will it cost to buy in installments with the cost of money at 3%? The question is asked by Fabi, the Autonomous Federation of Italian Bankers, which points out that mortgage rates, which already fell to 3.27% in October compared to peaks above 5% in 2023, could fall below 3% due to the cut rate by the ECB. With average rates of 2.9% you will save 80 thousand euros on a 25-year mortgage loan of 200 thousand euros (-21.9%) compared to 2023. The same applies to consumer credit, points out Fabi, whose credit rates fell to average. of 8.32%, after peaks above 14%, which could fall further to 8%. This means that a 25,000 euro car purchased entirely in installments, with a 10-year loan, will cost 11,705 euros less (-23.9%) compared to 2023. Again, for a 750 euro washing machine, with credit of 5 years, the savings in the next few months will be 167 euros (-15.1%). Fabi remembers, however, that in Italy there are 6.9 million families in debt, which is equivalent to around 25% of the total, of which more than 3.5 million have a mortgage to buy a house. At the end of October 2024, Fabi’s analysis finally highlights, the global value of mortgages for the purchase of housing amounted to 423.3 billion euros, an increase of around 33 billion compared to the end of 2020 (+9% ), but a decrease of around 3. billion compared to the end of 2022 (-1%). Of the total of 423.3 billion disbursed, approximately one third, that is, 144 billion, is the variable rate and the remaining 279 billion is the fixed rate.
For Facile.it, with the ECB’s 25 basis point cut, the installment of a standard variable mortgage could fall by around 18 euros in the coming months, from the current 682 euros to 664 euros, still well above the initial values for 2022 , when it was equivalent to just 456 euros. «But thanks to the ECB’s cuts, even those who maintained the variable managed to save, albeit in a less pronounced way», point out the experts at Facile.it. According to Codacons, Eutower’s cuts will lead to savings on the most common types of mortgages in Italy of between 13 and 30 euros per month when they are fully operational. For a 20-year mortgage worth between 100,000 and 200,000 euros, savings on the monthly installment vary between 13 and 27 euros, which is equivalent to a lower annual expense of between 156 and 324 euros. If the loan has a duration of 30 years, the 0.25% rate reduction will produce an average saving of between 15 and 30 euros in the monthly installment, between -180 and -360 euros per year. For a 25-year mortgage of 125 thousand euros, however, a similar cut translates into savings of around 17 euros per month, with an annual impact of 204 euros. «The fourth rate reduction would undoubtedly be a positive sign, but the path to offsetting the increases imposed by the ECB in the last two years is still very long», comments Codacons president Carlo Rienzi.
Source: IL Tempo
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.
