Why liquidity-bursting banks would raise upright loans, and what is the effect of more expensive real estate on the loan market.
Although the European Central Bank (ECB) – unlike the US Fed – has not yet announced an increase in interest rates, EURIBOR, the average interest rate at which a group of selected European banks lend money to each other, is already rising. If it continues to rise, sooner or later loans will start to rise in price, which we have become accustomed to in recent years as being “practically free” – this does not mean that they will be as expensive as they were a decade and a half ago, but they will be more expensive than they have been in recent years. The first, say sources from banks, will be housing loans, which have been by far the hottest banking product since last spring.
What is happening at the interbank market?
The three-month EURIBOR has risen by 0.06 percentage points since mid-December, when it reached a historic low (-0.605), reaching a one-year average of -0.55 percent. This is the highest since last December, but it is still noticeable below the levels before the start of the pandemic, which brought an even more relaxed monetary policy, when the three-month EURIBOR danced around -0.40 percent. It is similar with the six-month EURIBOR.
According to analysts, EURIBOR will rise in the future, but growth in goods is expected. On average, they expect it to be -0.27 percent in the second quarter of 2024.
Derivative financial instruments in the banking markets are also an eloquent indicator of expectations of future interest rate movements. Interest rate swaps for the three-month EURIBOR for the next ten years are concluded at higher values than we were used to last year, when such contracts were in a negative area for a good part of the year. The swap deals, which indicate the fixed interest rate at which banking market participants are willing to lend money at no extra charge for the next ten years, were close to 0.4 percent at the end of last week, the highest since May 2019.
Or to put it another way, before the pandemic, when central bank interest rates were higher than they are today, banking market participants did not expect as high interest rates for a decade as they expect today. Even though this is a multi-year peak, the data still shows that low interest rates are expected in the markets over the next ten years.
Bankers unofficially: fixed housing loans will be more expensive. In fact, they already are.
Housing loans are a hit with Slovenian borrowers, growing more than all other types of loans. The latest data – by the end of November last year – shows that year-on-year growth in housing loans was 8.6 percent, while year-on-year growth in loans to companies was 4.7 percent. By the end of November, companies had taken out only 33 million euros more loans than households, according to statistics. This is also shown by real estate prices, which rose sharply last year.
Currently, bankers say there is no season for home loans, the situation has calmed down a bit. This is completely normal – buyers of real estate calm down during winter – and it happens every year. They also note that the maturities of new loans are increasing due to rising real estate prices. Bankers say there are almost no more those under 20 years, since the annuities would be too high.
With the extension of the maturity of loans, these have become a bit more “expensive”, as those with a maturity of over 20 years are more interest-bearing. “Shorter” bank loans today “have no” interest rates even at a fixed interest rate of 1.5% – but we also know of several cases with a fixed interest rate of 1.35%. Various people have been taking out variable rate loans lately.
Bankers expect that demand will increase again in March. And until then – if they continue to grow in the debt markets (recall, the required yield on German bonds was in positive territory at the end of January for the first time since 2019, and similarly a week later the required yield on Slovenian bonds was highest after June 2020) and interbank market – you can expect loans to be more expensive. But not with all banks and not immediately. As with the introduction of levies, for example, smaller banks will wait for the big banks to “jump”. A source from one of these says that they are already talking about the fact that loans with a maturity of over 20 years with a fixed interest rate are likely to rise in price in March.
Bankers officially? They currently still have special offers.
It seems that Slovenian banks are still eager to grant housing loans at the moment – with high liquidity of banks (the Slovenian banking system had – at the end of November last year – in a central bank account and sight deposits with banks for 10, 84 billion of only cash) . Thus, several banks have special campaigns for housing loans, or are planning to do so soon:
- NLB is still planning a special campaign for the younger population, more precisely the plans have not yet been revealed.
- NKBM will not charge approval costs for housing loans until 31 March.
- SKB bank started yesterday, February 1st: with a variable interest rate, they will offer the same interest rate (1.30 percent + EURIBOR) regardless of the maturity, if the loan is secured by a mortgage. They did not say what the minimum fixed interest rate will be, only that it will be higher.
- In January, Unicredit lowered the interest rate on all maturities of secured housing loans by 0.1 to 0.2 basis points, and the offer is valid until canceled: loans up to 10 years bear interest at 1.6 percent, up to 20 years at 1.9 percent. For 30 years, 2.4 percent.
- Gorenjska banka is still planning a campaign, but they did not disclose it, but mentioned that in February they will introduce an “eco housing loan” at more favorable interest rates than the regular offer of a classic housing loan, but did not specify the conditions and offer.