Housing rates are dropping slightly: that’s how much you now pay for a mortgage loan | MyGuide

Three years ago you borrowed very cheaply for a home. Now take the evolution of the average interest rate for borrowing 250,000 euros, over 25 years, with up to 20 percent own contribution. At the beginning of December 2020, you paid an average of 1.44 percent interest for that loan. A year later, the interest rate stood at 1.58 percent, before rising to a peak of 3.88 percent in early November 2023. After that, the average 25-year interest rate fell again to 3.38 percent.

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To do this, we need to talk about the ECB and US Federal Reserve interest rates. These policy rates will probably decrease three more times this year. When such interest rate cuts are announced, demand for long-term government bonds usually increases. This also happened in October 2023. At that time, the interest rate for 25-year government bonds stood at 4.18 percent, before dropping to just above 3 percent, due to the increased demand for these long-term bonds.

To understand how the evolution of 25-year government bond rates affects the average home loan interest rate, you have to follow the banker’s logic and understand how he makes money from his customers’ savings. If he buys 25-year government bonds today, he will earn 3.43 percent. If he grants mortgage home loans for 25 years, this yields an average of 3.38 percent. Less, so. And yet the bank lends the money, hoping to attract customers for other products.

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If we look at the evolution of the interest rate for 25-year government bonds, the chance that the current interest rate of 3.43 percent will fall again to the average of the past 20 years, namely 2.92 percent, is statistically non-existent.

At least for the time being, because the IMF may be right. In that scenario, the aging population in Europe will weigh heavily on the economy. Not yet next year, but in the years after. After all, we have more and more retirees with a lower income, who therefore spend less. The economy is still growing by 0.5 to 1 percent, without inflation. In that case, the US Federal Reserve and the ECB will again buy bonds en masse to bring the interest rates on government bonds to zero and thus stimulate the economy and consumption.

Initially we only know interest rate decreases from the ECB and Federal Reserve. But these can already translate into lower interest rates for home loans. If the IMF is right and the US Fed and the ECB buy up bonds en masse, the interest rates on government bonds and therefore the interest rates on home loans will fall quickly.

If you took out a home loan of 250,000 euros over 25 years in October 2023, with a ratio – the ratio of the loan amount to the value of the home – of 80 percent, you paid an average fixed interest rate of 3.88 percent. In March 2024, this average will be 3.38 percent. This means that the monthly repayment does not decrease that much, from 1,293 to 1,228 euros. But there may be improvement on the way. However, as Belgians we must stop opting en masse for fixed interest rates. Otherwise we will still pay 3.38 percent, while the interest rate at that time is already (much) lower.

Read more on Spaargids.be:

Useful if you change homes, but how expensive is a bridging loan?

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Moving from Flanders to Brussels or Wallonia: how much registration duty do you pay on your new home?

This article was brought to you by our partner Spaargids.be.
Spaargids.be is an independent comparator of banking products and looks for competitive prices and better interest rates.

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