The ECB raises rates: what changes for home buyers

After a year of cuts and a year of pause, the European Central Bank has reversed course. On 11 June the Governing Council raised its key rates by 25 basis points, unanimously, citing price pressures linked to tensions in the Middle East. From 17 June the deposit rate stands at 2.25 per cent.

What happens to mortgages

2.25%

the ECB deposit rate from 17 June

+0.25

the increase decided on 11 June

2023

the year of the last rise before this one

Those with a variable-rate mortgage will see their payment rise in the coming months, because Euribor moves with expectations about the ECB. A quarter point on a €500,000 thirty-year mortgage is worth about €60–70 a month: not trivial, but not a shock either.

Those with a fixed-rate mortgage see no change. For those yet to sign one, fixed rates depend on the IRS swap rate, which reflects long-term expectations and had already moved in the preceding weeks.

What changes for buyers in Milan

In the prime segment a significant share of purchases is made without a mortgage, or with financing that is small relative to the price. For these buyers a rate rise weighs little on the decision. It weighs more on families buying their first home, for whom the monthly payment is the real constraint.

Three pieces of advice, now

• Those negotiating should ask the bank to lock the rate at approval: some offer this for a few weeks.
• Those with a variable rate should consider switching to a fixed rate, comparing offers carefully: mortgage portability is free of charge.
• Those selling should bear in mind that some buyers will have a slightly lower budget: the right price matters even more today.

The long view

A single rise does not change the market cycle, but it signals that ultra-low rates will not return soon. Those who buy a home to live in will stay ten, twenty, thirty years: over that horizon the district, the quality of the building and the light in the rooms matter more than a quarter point decided in Frankfurt.