By Chrysostomos Tsoufis

The signal to start reducing mortgage rates – which have been frozen for around 17 months – will be given by the ECB on Thursday with its decision to cut its key interest rates again.

From June the Frankfurt has proceeded to 3 reductions but mortgage rates for 422,000 households did not follow as they were frozen at a lower level. In fact, the Greek banks announced in May 2023 that the interest rates of floating rate mortgages disbursed until December 31, 2022 are frozen at the following levels:

-Of 2.7% for what was linked to the Euribor month
– Of 2.85% for the linked to the 3-month Euribor
– Of 3.30% for those linked to the ECB interest rate

This protection grid raised by Greek banks to protect Greek households from sharp increases had an initial duration of one year, but in April this year the financial institutions announced its extension until April 2025.

But everything shows that the time has come for reductions because the fourth reduction on Thursday from ECB it will drive interest rates below the limits at which mortgages had been frozen which means banks will have to start passing on the reductions to the 422,000 loans worth a total of €18bn that joined the protection programme.

Let’s take a €100,000 loan with a repayment horizon of 25 years which is frozen at a 3-month Euribor rate of 2.85% + 2.5% profit margin = 5.35%. That is, his installment is stuck at €615 from May 2023. Now with the upcoming reduction of 25 basis points, the interest rate drops to 5.1% and therefore the monthly installment will be €597.5. That is, the monthly benefit for the borrower is €17.50

According to the banks’ calculations, the freezing of interest rates resulted in borrowers saving around €300 million.
Taking the above loan as an example, if its tranche had not been frozen at €615 and followed normally the course of the ECB’s interest rate decisions, it would have to be increased an additional 4 times by September 2023. The interest rate from 5.35% should have gone to 6.35% and the installment should have jumped to €673.3

Bank executives were saying to skai.gr that the reduction of interest rates on Thursday by the ECB, does not mean a reduction of interest rates by the banks on Friday. The process of amortization lasts 3 months, they said, so in theory the first reductions should be noticed by the borrowers in March.

However, the sooner they pass, the better not only (reasonably) for the borrowers but also for the banks themselves at a time when they are gathering only negative publicity for the amount of their charges in loans and commissions.