Mortgage Interest rate update – June 2024
On June 8th, the European Central Bank (ECB) announced the decision to lower interest rates, from 4.5% to 4.25%. It was as expected, with the institution itself pointing out for months in advance that June would likely be the time for a change.
Mortgage interest rates in Spain
By Spectrum IFA
This article is published on: 27th June 2024
Companies and governments will be able to continue financing themselves at a lower cost, having adjusted to interest rates that have reached their highest levels since 2001. The announced cut is of course marginal, especially in comparison with the dramatic increases from zero in July 2022 to 4.5% in September of last year – two years during which the cost of financing skyrocketed and banks turned off the credit tap.
Inflation is now showing signs of subsiding. The ECB’s objective was to cool the economy in order to stop the upward spiral in prices, and it seems to have succeeded – the inflation rate in the Eurozone reached a maximum of 10.6% in October 2022 and currently prices are growing at a more subdued rate of 2.6%, according to May data. At this level, it is close to the ECB target of 2%. The rate cut is designed to lower borrowing costs, thereby encouraging consumer spending and business investment. This increase in economic activity is expected to help balance inflationary pressures and move us further towards the ECB’s inflation target.
The Eurozone has recently been experiencing a noticeable slowdown in economic activity. Additionally, geopolitical tensions and trade uncertainties have exacerbated these economic challenges, prompting the ECB to act. This move aims to address the Eurozone’s slowing economic growth and persistent inflation concerns, reflecting the ECB’s strategic role in supporting economic stability. And, although economic growth has been anaemic (barely 0.4% in the euro zone in 2023), the ECB may have saved the economy from recession, understood as two consecutive quarters of negative growth.
ECB President Christine Lagarde indicated that the ECB is prepared to implement further measures if necessary, depending on future economic direction. The central bank will continue to closely monitor key economic indicators, such as growth rates, inflation trends, and external economic factors, to guide its policy decisions. Mortgage interest rates in Spain have started to fall, which is good news for borrowers, but there is no certainty on the timing or the scale of future rate cuts.
Should you have any enquiries regarding the content of this article, or any other questions relating to mortgages in Spain, please do not hesitate to reach out to us for further information.
Patricia Nadal: spain@spectrum-mortgages.com