Euribor Increase To 1.25%: Effects On Estonian Property Market (2)
The European Central Bank (ECB)’s decision to raise the Euribor index of lending rates to 1.25% on Thursday last (7th April) perhaps comes as no surprise, and it seems likely that further rises are due for the course of 2011.
Since many Estonians hold their mortgages in variable rate packages which follow the base rate, this means an increase in repayments (approximately 160 Euros per year, according to Baltic Business News, quoting business publication Äripäev).
However it needn’t mean that fixed lending rates in Estonian high street banks will go up just yet, since banks are prepared to absorb the increase in their margins. The current margin average is some two per cent (i.e. on top of the Euribor rate) down from 2.4-2.6 per cent in 2009, but the all time typical margin stands at only 0.5 per cent. Therefore there is still plenty of room for a reduction of margins, rather than an increase in bank rates. This is significant in the rejuvenation of the Estonian property market after the recession of 2008-2010, since it means bank rates should remain at an affordable level for the meantime, and not act as a barrier to potential homeloan customers.
Andrew Whyte
Tallinn Property by Goodson & Red
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Kommentaarid
Please do not call the ECB main refinancing rate “Euribor”. Although the two are closely related, you are precisely wrong if you put equal sign between them.
Thanks for drawing our attention to this oversight. It has been amended on the original Tallinn Property blog from which this article was taken.