Economists expect Euribor's rate fall to continue
The six-month Euribor has hovered around 2.5 percent since the end of December and economists expect it to fall again this month. However, it is not expected to trigger a major real estate boom in Estonia.
While the Euribor fell rapidly last year, it slowed at the end of the year. LHV macro analyst Triinu Tapver believes the trend will continue.
"The expectation is that by the end of this year, the six-month Euribor will fall to 2 percent, and by mid-year, it will be somewhere around 2.2 percentage points. Perhaps the steeper decline has already happened, but the decline should still continue this year," she said.
Swedbank economist Tõnu Mertsina agreed.
"The market is currently expecting a drop in Euribor. On the one hand, this is driven by slowing inflation, and on the other hand, perhaps even more significantly, by the weakness of the eurozone economy. Especially when considering the eurozone economy in light of increased geopolitical risks and trade-related risks," he explained.
However, Mertsina believes the six-month Euribor could fall to 2 percent even sooner.
"If we compare this with the European Central Bank's interest rate, our estimate is that the interest rate should reach 2 percent by June, and along with that, the six-month Euribor will also move downward. We have Euribor futures for three months, and the three-month Euribor is currently expected to be at 1.9 percent by the end of the year. Since the six-month Euribor is already slightly lower than the three-month Euribor, it should actually reach two percent even sooner," Mertsina explained.
A decline in Euribor makes mortgage repayments more affordable, meaning it could be a better time to take out a home loan. However, Tapver does not foresee a significant impact on Estonia's real estate market.
"In terms of home loans, I made a simple calculation: if the six-month Euribor indeed falls to 2 percent by the end of the year, then the monthly payment on a €100,000 home loan could decrease by about €25 compared to the current level," she noted.
Tapver acknowledged it could affect real estate market activity.
"However, Estonia's specific conditions must be taken into account. This year, we expect an acceleration in price growth, and given the rapid price increases of previous years, there may be fewer people left who can afford to buy property. This year, if wage growth slows as expected, it can be assumed that the real estate market — particularly in terms of home loans — will not receive a significant boost," she outlined.
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Editor: Helen Wright
