Falling interest rates: on first home loans at 3.28% in October

Interest rates for households and businesses are falling, thanks mainly to the latest cuts by the European Central Bank (ECB) and the anticipation of new central bank decisions. As the latest bulletin issued by the ABI for the month of October 2024 shows, the average rate for new loans to businesses fell to 4.60 per cent, compared to 4.90 per cent in September, while for house purchases, the rate dropped to 3.28 per cent.

These trends suggest a favourable environment for access to credit, even the average total loan rate was 4.61%. As the Association explains, the data show that despite some positive signs in the decrease of interest rates and funding, the current economic environment presents new challenges for the sector such as the decline in loans and the management of impaired loans.

Despite lower interest rates, the continuing uncertainty in the economic environment still led to a decline in credit volumes. In October 2024, loans to businesses and households decreased by 2.0% year-on-year. On a positive note, however, the figure for impaired loans should be read, which in net terms fell to EUR 30.9 billion, demonstrating an improvement in credit risk management compared to the highs of 2015.

In the first fourteen days of November 2024, the 3-month Euribor rate averaged 3.04 per cent, down from 3.17 per cent in October, a decrease of 96 basis points from its peak in October 2023, as the ABI points out. At the same time, the six-month BOT rate averaged 2.95 per cent, down 4 basis points. The 10-year Irs rate, which is important for mortgages, also decreased to an average of 2.39%, while the 10-year Btp rate increased to 3.66%, thus with different dynamics between the various instruments.

In October 2024, the rate on new term deposits stood at 3.14%, remaining higher than the euro area average. As stated in the ABI bulletin, this represents a significant increase compared to the value of June 2022. The yield on new bank bond issues reached 3.83%, highlighting the growing interest in bank investments. The margin (spread) between the rates on new loans and new deposits fell to 159 basis points, indicating increasing competitiveness in the credit market. Finally, indirect deposits showed a considerable increase, growing by about EUR 208 billion between September 2023 and September 2024. Medium- and long-term deposits through bonds increased by 8.7%, continuing to show a positive trend.