16 October 2024 | By John Busby
October 24 European mortgage market update
European mortgage market rates
European Mortgage Market Update
ECB Cuts Rates Again and Labour Budget in the UK
This European focussed update from Traverse and Knight Frank will come out every 6 weeks or so covering our markets for finance in the European Economic Area.
As you will probably be aware by now, the European Central Bank (ECB) reduced rates this month by 0.25%, the latest move following last month's cut. The main deposit rate is now 3.25%. This decision was made against the backdrop of continued falling inflation figures in Europe, with headline rates falling faster than expected to 1.8%, below the target 2% figure for the first time since June 2021.
Market forecasts and Euribor swap rates continue to predict a softening of the bank’s stance with another cut in prospect before the end of the year. The 3-month Euribor swap rate is at 3.05% indicating further reductions to come over the course of the next 3 months. The next opportunity to change the rate is in December with many predicting the next rate cut at that point.
There is also the prospect of a rate cut in the UK next week as inflation fell below 2%. UK Nationals now will have greater confidence following the hotly anticipated first Labour Budget in 14 years (and the first ever by a female Chancellor in the UK). Non-Doms in the UK will have to wait a while longer to hear the final set of changes following the removal of the concept of tax domicile which is now replaced with a focus on residency.
European Mortgage Market Rates and Indices
| Market indicators | Local 20 year fx | Private bank rates |
|---|---|---|
| 3-month Euribor: 3.05% | France: 3.9% | 3-year fix: 3.6% |
| 5-year swap rate: 2.16% | Italy: 3.5% | 5-year fix: 3.5% |
| 15-year swap rate: 2.43% | Spain: 3.0% | 20-year fix: 3.9% |
| Average margin: 1.30% | Portugal: 3.5% | Euro variable: 4.8% |
| Swiss Base Rate: 1.25% | Swiss: 2.5% | Swiss variable: 2% |
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: Spanish Refinance Using Hedge Funds as AUM
The story opens:
A British national had developed a property in Ibiza to a fantastic standard. He was seeking further funds to complete a residential development in the UK and to refinance the loan initially used to purchase the property. A Further Advance is difficult to obtain in Spain through retail banks unless for renovation works and so a Private bank was in prospect where the borrower was required to place 50% of the loan amount in assets with the lender.
Traverse closes:
We arranged a facility at 70% against a valuation of €8.5M with an interest rate of 3.7% and a period of interest-only for 5 years followed by 20 years of capital and interest. Usually, lenders assign a lending value to the assets placed with the bank which reduces the amount of cash available to the borrower. However, in this case we worked from the nominal value of quoted hedge fund shares and so we were able to use 100% of the value which was to the advantage of the client.