The horizon is brightening for real estate loans. After an unprecedented phase of monetary tightening, the European Central Bank (ECB) began on Thursday June 6 to lower its key rates. A decision which offers a slight breath of fresh air to ease tensions on real estate credit. Serving as a reference, the rate on deposits of 4%, its highest reached last September, was reduced to 3.75%, according to a press release from the European institution.
The notable decline in inflation in the euro zone ended up convincing the ECB’s governing council to ease monetary restraint from June, at the end of a cycle of unprecedented rate increases launched in July 2022, then nine months of pause at record levels. However, the ECB still sees inflation “remaining above the target” of 2% “for a large part of next year”.
The cause is internal price pressures which remain strong, especially in services, due to high wage growth. The institute has therefore revised its inflation forecasts upwards compared to that of March, seeing the aggregate on average at 2.5% in 2024 and 2.2% in 2025, finally 1.9% in 2026.
Breathing for real estate?
The ECB’s last rate cut dates back almost five years, in September 2019. The question is whether the timid movement made on Thursday will create a psychological shock precursor to a resumption of activity, all without seeing the inflation starts to rise again.
The most visible impact should concern the real estate market, where borrowers, especially those with variable rates, have been squeezed by the sudden rise in rates. This caused a collapse in the volume of new loans to households applying to purchase housing, without having a significant effect on housing prices.
Prospects for lower rates can therefore “relieve the slump in the real estate market, the recovery of which can support growth somewhat,” notes Eric Dor, director of economic studies at the IESEG School of Management. “Without returning to the artificially low rates of the years 2017-2022, we can reasonably hope to find average credit rates of around 3.30% at the end of the year,” estimates Caroline Arnauld, general manager of the broker CAFPI.
No immediate impact
However, the ECB’s decision should not have an immediate impact on property loan rates, as banks have been anticipating this drop in key rates for several weeks. However, “this new path taken by the ECB will reassure (the banks) in their possibility and their desire to continue this movement of lowering credit rates” analyzes Julie Bachet, general director of Vousfinancer.
Others, however, believe that this decline is not rapid enough. For Thomas Lefebvre, scientific director of the SeLoger/MeilleursAgents group, “while this reduction remains good news, it remains insufficient. For example, the real estate situation today is equivalent to that at the start of 2022, but with much higher rates (between 3.5% and 3.7% at the moment, compared to 1% over 20 years in 2022). “The drop being very moderate, it will have almost no influence,” adds Maël Bernier, communications director at Meilleurtaux.
The Fed outpaced for the first time
For the moment, the ECB gave no indication on Thursday on the continuation of the new cycle of rate cuts, continuing to affirm that it will depend on the economic data available meeting after meeting. The Frankfurt institution, however, burned politeness on Thursday for the first time in its history to its big sister in America, the Federal Reserve (Fed).
The latter will have to wait to relax its policy because the dynamic economy of the United States is accompanied by a more stubborn price curve. The ECB, if it lowers its rates more quickly, could cause the euro to fall, favoring exports. But this would also make imports more expensive, leading to further fuel inflation.