Lighter mortgage repayments, falling government bond yields and less heavy public debt. Increase in loans to businesses and families thanks to cheaper credit which fuels the recovery in consumption, economic activity, employment and the real estate market. These are some of the main effects of the ECB's rate cut.
On Thursday we are betting on a 25 basis point shortfall. The first cut after the cycle of ten consecutive increases that began in July 2022, but the market has already priced in the easing of the cost of money and banks have improved conditions on loans and mortgages.
Cheaper mortgages
If the ECB, as expected, lowers rates by a quarter of a point, mortgages will be less expensive, starting with variable rate ones. Facile.it has calculated that, if a 25 basis point cut were confirmed, the drop for an average variable mortgage could be 18 euros. Analyzing the trend of Euribor Futures, we discover that the installment of an average variable Italian mortgage, which reached 747 euros in May 2024, could drop overall by around 37 euros by the end of the year and by 55 euros by June 2025 , thus reaching 692 euros in 12 months.
More loans to businesses, investments grow
More advantageous credit conditions can push companies to increase their requests for financing, with a positive impact on investments which would bring oxygen to economic activity and employment.
Banks have already reduced financing costs
In view of the first cut in the cost of money, and above all the series of reductions expected during the year, the banks have already priced in the start of the bearish cycle by starting to reduce the cost of financing. The ABI found that already in April the average rate on new transactions for the purchase of houses decreased to 3.67% compared to 3.79% in March and 4.42% at the end of last year.
The cost of debt is less expensive
The drop in rates generates a beneficial effect on the state coffers due to the lower interest that must be paid on the public debt which has reached almost 2,900 billion. The Parliamentary Budget Office calculates a possible saving of 3 billion this year in anticipation of an overall decrease in ECB rates of 100 basis points during 2024. Savings which will become larger next year, reaching 7 billion, for then rise to around 10 billion in the next.