Banks: ECB rate hike should not overburden borrowers
Experts expect the European Central Bank's September 10 rate hike to 2.5% won't be the last this year, but banks say most borrowers should be able to absorb further increases.
The European Central Bank raised its key interest rate to 2.5% on September 10, and experts expect at least one more hike this year, likely in December, with a possible further increase by next spring.
Inflation pressure persists
The main driver behind the rate hikes is persistent inflationary pressure. The ECB forecasts average inflation of around 3% this year, 2.5% next year, and just above 2% in 2028. High energy prices, driven partly by the conflict in the Middle East, remain a key factor. If gas and electricity prices rise significantly this winter, rates could climb further.
Rein Leesi, head of investments at Avaron, noted that the opposite scenario is also possible: if a resolution were found to the conflict around the Strait of Hormuz, lowering oil and gas prices, it would reduce the need for further rate increases.
Limited impact on borrowers
The rate increase expected by year's end is already largely priced into the six-month Euribor, currently around 2.8%. As a result, the ECB's decision itself should not significantly raise mortgage payments.
Estonia's housing loan market is described by experts as very active, dominated by floating interest rates — only about 1-2% of loans are fixed-rate. Sille Hallang, head of retail banking at SEB, said there has been no noticeable increase in interest in fixing rates.
Banks believe that, given rising average wages and the conservative affordability calculations used when issuing loans, the rate increase should not prove unbearable for borrowers. Hallang explained that if the six-month Euribor rises by half a percentage point from its current 2.8%, the monthly payment on a €100,000 loan balance would increase by about €30, and on a €150,000 balance by about €45.
