The signal given to the economy and in particular to businesses and households from the announcement of the European Central Bank (ECB) for a further reduction in its interest rates. Businesses will have access to cheaper borrowing as well as households requesting new loans from banks.

For those who have already received mortgage loans with a floating interest rate in the past, the reduction in installments will depend on the speed of further reductions in ECB interest rates (in case they continue), as the installments of these loans have been “frozen” by the banks for everyone consistent borrowers from May 2023 – with the freeze in effect until May 2025 – based on the reference rate in force at the end of March 2023 minus 20 basis points. With the March 2023 ECB lending rate at 3.5% and the three-month Euribor – which is the benchmark for most floating-rate mortgages – just over 3%, loan installments “locked in” » with the Euribor lower than 3% and specifically around 2.8%. In this way, the borrowers were not burdened by the ECB’s interest rate hikes that followed, with all the positive implications of this both for them, as their family budget was not burdened, and for the banking system.

With Euribor currently hovering around 3.2%, in order to benefit borrowers whose installments have been ‘frozen’, it would need to fall to 2.8% to reach the level at which borrowers have been ‘frozen’ banks the interest rate for consistent borrowers). This is expected to happen around the second quarter of 2025, as long as the extension of the measure for consistent borrowers lasts. If benchmark rates are cut earlier, the benefit will be passed on to borrowers.

However, consistent borrowers benefited significantly from ECB interest rate hikes before the start of the tapering cycle.

300 million benefit to consistent borrowers to date

In particular, as mentioned by the CEO of Alpha Bank Vassilis Psaltis speaking a few days ago at an event of the Association of Central Greek Industries the banks offered significant support to consistent borrowers by freezing benchmark rates (Eurobor) from May 2023 at 2.80% for all their floating mortgages until May 2025 , which resulted in a benefit of approximately 300 million euros for consistent borrowers.

The interest rates on new mortgages, as pointed out by Mr. Psaltis, are today more competitive than the rest of Europe, as in Greece the average interest rate offered for a fixed interest rate up to the first 5 years is 3.42% compared to 3.93% of the European average. Referring to the financial conditions prevailing in the Greek economy, he also said that there is intense competition between banks and in terms of business loans.

Regarding deposit interest rates, Mr. Psaltis stated that the difference with the European average is around 50 basis points and is mainly due to the fact that 70% of the deposit base of Greek banks (compared to 60% in Europe) consists of small personal balances for daily transactions. At this point, he highlighted the need to inform citizens about the new savings products offered.

More generally, the reduction in ECB interest rates will contribute to maintaining the growth rates of the Greek GDP, which is one of the highest in the eurozone, while it will give a positive signal to households and businesses, giving them access to cheaper borrowing with all the positive implications this implies in a time of challenges for family budgets.