After four years of declining interest rate, mortgage loan interest rates will stabilize. Is this the lowest point and can we expect an increase in mortgage loan interest?
Since 2012, the average mortgage loan interest rate has dropped by almost 2%. This is evident from new figures from De Nederlandsche Bank (DNB). We paid 4.4% interest for the mortgage loan 5 years ago, now this is 2.41% on average. This downward trend now seems to come to an end. The economists of DNB have pointed out that mortgage loan interest rates have been ‘reasonably stable’ since October 2016 and have even ‘slightly increased’.
Interest rate period
Homebuyers also think that mortgage loan interest rates will rise again soon. They set the interest rate of their mortgage loan longer than before. In the years 2012 up to and including 2015, half of the closed mortgage loans had a fixed-interest period of more than five years. In 2016 and 2017 this is on average three-quarters. The mortgage loan debt of Dutch households at Dutch banks amounted to 521 billion euros in June.
Low interest rates are mainly due to the policy that the European Central Bank has been pursuing for a few years. On August 9, 2007, the central bank began supporting the money market to prevent banks from being without money. This was followed by the debt crisis in 2009, which forced the ECB to buy government bonds from weak euro countries. In 2014 it was decided to gradually lower the policy interest rate and expand the purchase program. Banks can get cheap money in this way to lend out. Savings were therefore less attractive, but borrowing money became cheaper.
The lower market interest rate has therefore prompted many banks to proceed cautiously with a reduction in their mortgage loan rates. There are big differences within Europe. In Finland the mortgage loan interest rate is 1.03% and in Ireland 3.22%.
Lowest point reached
Since the beginning of this year, the ECB’s low-interest rate policy has started to affect the economy in the Eurozone. The European inflation rate has been at 2% for some months, the growth the central bank is aiming for. For the European Central Bank, this recovery is still too fragile to radically change the policy. An expansion of the crisis measures is not obvious. We can therefore conclude that the lowest point for mortgage loan interest has been reached.