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Cyprus homeowners could soon see another increase in their monthly mortgage payments, with the European Central Bank widely expected to raise interest rates on Thursday.
Markets are pricing in a quarter-point increase, which would take the ECB’s deposit rate from 2.25% to 2.5%. In central bank language, that is 25 basis points. In household language, it means borrowing could become more expensive—again.
Consider someone with €150,000 left on a mortgage and 20 years remaining. If their interest rate rose from 3.86% to 4.11%, their monthly payment would increase from roughly €898 to €918.
That is about €20 more each month, or €240 a year. For a €200,000 mortgage under the same terms, the increase would be approximately €26 a month.
These are illustrations rather than predictions. Banks do not all pass on ECB changes in exactly the same way or at the same time.
The impact will depend largely on the type of mortgage. Borrowers with variable-rate loans linked to Euribor or another benchmark are the most likely to feel the increase. Those with fixed-rate mortgages should see no immediate change, although they could face higher costs when their fixed period expires.
People applying for a new home loan may also find that the amount they can borrow becomes smaller, as banks calculate whether they can afford the higher repayments.
The Central Bank of Cyprus said the average interest rate on new housing loans reached 3.86% in its May release, although rates differ depending on the bank, property and borrower.
The expected increase comes as higher oil and gas prices push inflation upwards once again. Eurozone inflation reached 3.3% in August, well above the ECB’s 2% target, while energy prices rose by 14.3%.
The ECB raises rates to discourage borrowing and spending, helping slow price increases. But for families already paying more for fuel, electricity and groceries, the medicine can feel almost as painful as the illness.
Many economists believe Thursday’s increase could be the last for now. However, much depends on the Middle East conflict and whether energy prices remain high. Some analysts are already warning that another rise could follow in December.
For Cyprus mortgage holders, the sensible step is to check whether their loan is fixed or variable, which benchmark it follows, and when the rate is next due to be adjusted. A quarter of a percentage point may sound small, but over years of repayments, small numbers have an annoying habit of becoming real money.
*With information from Reuters & ECB
