It is a fact that the island’s major financial institutions have lowered their interest rates significantly.
Rates have been lowered by 2 per cent.
An existing housing loan has seen a 2% decrease, i.e. from 4.75% to 2.75%.
This is a serious reduction which has not yet received the appropriate attention by many.
What will be the repercussions to the real estate market but also the economy in general?
Let us present an example to better explain the positive ramifications for buyers:
A young couple is buying a new 2-bedroom flat for €125.000. They pay 25.000 euro up front and get a loan for the remaining 100.000 euro. The installment for this loan at 2.75% interest rate and a repayment period of 25 years is 465 euro/month. This amount is about the same as the rent they’d pay for the same flat.
It is easily understood that with both wife and husband employed, the 465/month is not prohibitive.
A month ago they would have paid 577 euro for the same loan just because of the interest rate.
We remain optimistic but prefer to be realists at the same time.
The interest rate reduction will be beneficial to market liquidity, investor psychology and the real estate market, but has to go along with a reduction of the non-performing loans.
To reap the fruits of lower rates all the alarmism, populism and overreaction on the issue of the insolvency legislation must stop.
We must pay attention to resolving the non-performing loans issue, without banks having to resort to extreme measures and risk causing social unrest.
Political parties must allow banks (by voting the relevant legislation) chase the mega borrowers who do not service their loans. We must not allow 7 developers, 5 politicians, 3 ex-bankers and 1 union to shape the island’s monetary and banking policy.
Non-performing loans weigh in heavily on the country’s economy and must be prudently managed if the lower interest rates are to achieve their intended purpose.
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