ECB rate hike could push loan payments higher next spring
The European Central Bank's latest rate hike is already reflected in the six‑month Euribor that shapes most Estonians' loan payments, meaning borrowers are unlikely to see higher monthly costs this year — but a spring increase could still push payments up.
Financial markets currently believe that Thursday's ECB rate hike to 2.5 percent will not be the last this year.
"Market expectations put euro‑area base rates at around 2.8 percent by year‑end, and by next spring they are expected to rise to about 3.2 percent. Euribor, which moves mainly according to market expectations, stands at 2.8 percent today," said Rain Leesi, head of investments at Avaron, an investment management firm.
Since the six‑month Euribor affecting Estonians' loan payments is already at 2.8 percent, the next rate hike is considered priced in and should not raise loan payments. A further rise in Euribor is more likely later on.
"If we look at the level at which Euribor can be fixed for the next five years, today it can be fixed at 3.5 percent — the same high rate as in 2023, when ECB interest rates were around four percent," Leesi said.
Most Estonian home‑loan contracts use floating Euribor, meaning any rise in Euribor directly affects monthly payments.
"If today the six‑month Euribor is 2.8 percent and it rises by half a percentage point, then for a €100,000 loan balance the monthly payment increases by €30, and for €150,000 by €45," said Sille Hallang, head of retail banking at SEB.
So far, rising Euribor has not dampened Estonians' appetite for home loans.
"We do not see a decline in borrower activity — quite the opposite. The home‑loan market is very active and growing compared with last year, so there is no visible direct impact at the moment," Hallang said.
According to Hallang, SEB's volume of new home loans has grown more than 10 percent over the past year.
Ülo Kaasik, governor of Eesti Pank and member of the ECB Governing Council, said he understands why markets expect further rate hikes, noting that they depend on global developments and energy‑price movements.
"Whether we need to raise rates further depends on how future developments unfold and how inflation pressures play out. The main concern now is that risks are increasing, especially geopolitical risks, where events can shift in either direction at any moment," Kaasik said.
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Editor: Johanna Alvin, Argo Ideon
