16 December 2024 | By John Busby
Dec 24 European mortgage market update
Dec European mortgage market rates
European Mortgage Market Update
ECB Cuts Rates Again, Positive Funding Conditions Emerging
The European Central Bank (ECB) reduced rates again today by 0.25%, the latest move following the 0.25% cut in October. The main deposit rate is now 3.00%. The decision was made against the backdrop of a slight rise in the inflation figures in the European Union, with the headline rates increasing to 2.3%, just above the target 2% figure.
Market forecasts and Euribor swap rates continue to predict a softening of the bank’s stance following this decision with another cut in prospect in the New Year. The 6-month Euribor swap rate is at 2.66% indicating further reductions to come over the course of the next 6 months. The next opportunity to change the rate is in January with many predicting the next rate cut at that point.
These cuts are now firmly tipping the balance towards a favourable environment for the purchase of property in the EU. With the 5yr, 10yr and 30yr swap rates all at approximately 2%, short-, medium- and long-term borrowing is possible at 3.5%. Returns on bond portfolios are still returning 5%+ on a conservative basis meaning there is a notional 1.5% gap to the benefit of the borrower (depending on tax arrangements).
This gap is even larger in Switzerland where the base rate has been reduced to 0.5% and margins on loans are even keener.
The ultimate question at the moment is whether the weakening rates and currency value in Europe, and ultra-low rates in Switzerland, will tempt larger numbers of buyers to markets where it seems many purchasers have been waiting for conditions to improve. Or will they continue to leave the purchasing and refinancing to the top end of the market and those moving for tax reasons?
European Mortgage Market Rates and Indices
| Market indicators | Local 20 year fx | Private bank rates |
|---|---|---|
| 3-month Euribor: 2.85% | France: 3.5% | 3-year fix: 3.5% |
| 5-year swap rate: 1.96% | Italy: 3.5% | 5-year fix: 3.5% |
| 15-year swap rate: 2.17% | Spain: 3.0% | 20-year fix: 3.8% |
| Average margin: 1.30% | Portugal: 3.25% | Euro variable: 4.2% |
| Swiss Base Rate: 0.5% | Swiss: 1.5% | Swiss variable: 1.75% |
These rates are widely available for US and UK based buyers usually at 70% LTV. These rates are a general guide, indicative and subject to client circumstances. Private banking deals will require a minimum of 30%-50% of the loan amount in assets under management. Traverse arranges purchase and refinancing deals in the above locations.
Case Study: Riviera Refinance to Invest in Markets
The story opens:
A French family SARL developed a property in St Tropez to an impressive standard. The family were seeking a refinance of their existing debt, release of some equity to place in a portfolio as well as release of funds to reimburse the shareholders for their contributions towards the build costs. The valuation on the property came in at €12M post works completion but had some minor conformity issues.
Traverse closes:
Traverse managed to find a private bank with the flexibility to lend in this scenario. We discovered some conformity issues which can be a non-starter but managed to smooth this point over. The total loan facility was €11M with €6M kept in a portfolio by the bank. The term is 5 years, renewable, on interest only on a variable rate with a margin of 1.35% + 12-month Euribor.