ECB, Lagarde announces interest rate cuts in June: what will happen to mortgages

The president of the European Central Bank Christine Lagarde announced that, if the economic conditions in the euro area remain the current ones, the authority that governs the single European currency could lower interest rates in June. This would be the first decline since 2015, while the increases that led to the current peak began in 2022.

Two years of high rates have led to a slowdown in inflation but have also put the post-Covid-19 pandemic recovery of several European countries in difficulty. For citizens, this move will have a significant effect on mortgages, even if Lagarde has warned against predicting a new season of continuous reductions for the coming months.

Lagarde’s announcement on interest rates

“Although inflation has slowed, uncertainty remains about its persistence: in June, if data confirm expected underlying inflation, the ECB will be able to make the less restrictive monetary policy”. With these words, the president of the European Central Bank confirmed that from this summer interest rates in Europe could begin to fall after two years of increases.

However, Lagarde also wanted to underline that: “there will be a period in which we will need to continually confirm that the data supports the inflation outlook“. In the following months, therefore, the ECB will monitor the European economy to verify that inflation has actually reached the limit considered healthy of 2%.

Three parameters were most taken into consideration. On the one hand, wages, whose growth may not stop due to low unemployment. On the other hand, companies’ profit margins, which if even just 1% higher than this year could bring inflation well above 2%. Finally, the productivity of companies, which must prove capable of returning to pre-pandemic levels and satisfying underlying demand to avoid a market correction towards an increase in prices.

The effect of the ECB’s decision on mortgages

The decision of Lagarde and the ECB will affect every area of ​​the economy and the lives of citizens. There monetary policy it is the primary way that institutions attempt to regulate markets, keeping inflation at an acceptable level. However, there is one area in which the lowering of interest rates will have a more immediate consequence: that of mortgages and loans.

After years of very low rates, even zero, the increases in recent years have made it increasingly expensive to borrow money from a bank, especially to buy a house. The increase in mortgage rates has been a problem mainly for those who have chosen a variable rate option and have seen the cost of their loan increase very significantly in the space of a few months.

If confirmed, the decision to lower interest rates in June should also begin to bring up interest rates mortgages under control. It will take time, as underlined by President Lagarde herself, to return to the situation before the pandemic when the cost of money was zero. However, the peaks of recent months should no longer be seen and the real estate market could also benefit from this.