If the forecasts come true and the European Central Bank lowers key rates several more times, how much will Euribor and the monthly mortgage payment decrease? Will the loan amount that new clients wishing to purchase a home increase? Citadele Bank's Head of Retail Banking Janis Murnieks explains. There are three ECB meetings left until the end of the year, and the bank may decide to lower interest rates at them. Financial analysts predict that the base interest rate may be lowered by 0.25 percentage points at the end of September. A similar scenario may be repeated in October and December. If the forecasts come true, the 6-month Euribor may fall from the current 3.45% to approximately 2.8% by the end of the year. According to Janis Murnieks, the probable reduction in interest rates may affect the real estate market in various ways. "Firstly, any rate cut means that people will be able to apply for larger loan amounts. Based on the Euribor peak in mid-October 2023 and assuming that interest rates could be cut three times by the end of the year, the potential loan amount could increase by more than 10%. This will give people more choice and make new developments, private homes and housing in general more affordable." The size of the mortgage payment depends on the amount and term of the contract, the type of monthly payment and the date the rate is fixed. However, each situation should be assessed separately – for example, if the monthly payment is much higher than 500 euros and the contract term is longer than 25 years, the payment will decrease even more. In 2022, when the ECB regularly decided to raise rates to combat rising inflation, Euribor began to rise faster, but since last autumn, these rates have generally been trending downwards. "Euribor rates have been steadily falling since October last year. This means that most customers have already seen their first monthly payment reduced. This is important because people can see for themselves that the interest payment is becoming lower, which has both a practical and psychological effect. This gives households additional flexibility in planning their expenses, and it signals to the market, including future home buyers, that the peak of monthly payments may be behind us in the foreseeable future," says the bank's analyst. As interest rates fall, monthly mortgage payments are also gradually decreasing in all European countries. However, the situation is different. According to the currently available ECB data for April, Latvia still has some of the highest rates.
