The European Central Bank (ECB) has announced another interest rate cut, aiming to stimulate economic growth and ease borrowing costs. While this move brings some relief for mortgage holders, it is unlikely to cool rising property prices due to persistent supply shortages.
A move to stimulate growth
The ECB’s decision is primarily driven by two factors: inflation in the eurozone is now under control, and economic growth in key countries like Germany and France remains stagnant. By reducing rates, the central bank aims to stimulate economic activity and encourage investment. This brings the cost of borrowing to its lowest level since February 2023, more than two years ago.
The Governing Council has lowered the three key ECB interest rates by 25 basis points. Effective from 12 March 2025, the deposit facility rate will decrease to 2.50%, the main refinancing operations rate to 2.65%, and the marginal lending facility rate to 2.90%.
Impact on the housing market
For homebuyers, the lower interest rates will make mortgage financing more accessible, potentially allowing more people to enter the market. However, the underlying issue remains: housing supply is still constrained.
The increase in demand, coupled with a sluggish supply response, is expected to keep prices on an upward trajectory. This trend has been evident in recent years, as interest rate cuts have consistently fuelled property price growth rather than cooling it. In 2024, Spanish house prices increased at the fast rate (+8.4pc) since the bubble back in 2007.
Outlook: more buyers, higher prices
While lower borrowing costs will be a welcome relief for existing homeowners and prospective buyers, the fundamental mismatch between supply and demand suggests that affordability challenges will persist. Unless new housing stock enters the market at a faster pace, price pressures are unlikely to ease in the near future.
