The banks had – and still have – very strict criteria and “cut off” many interested parties, while the high cost of financing keeps many who are thinking about buying a home away. In February this year the interest rate
(floating or fixed up to 1 year) reached 5.48%, a breather from the all-time high of October 2008, when it had reached 5.92%. The all-time low was in December 2021, when the rate had fallen to 2.05%. Within 26 months the cost of interest rates increased by 167.32% for anyone looking to get an average mortgage.
Everything became more expensive at the beginning of 2022, just before July 2022 came, when the ECB started the cycle of increases in its interest rates that went from zero to 4%. Just as in 2022, banks started their hikes just before the ECB started theirs, so now they are expected to reduce mortgage interest costs just before the ECB cuts its own central rates. Markets have priced Frankfurt to cut its key interest rates by around 0.7% – 1% within the year, starting with the board meeting. in June.
The prevailing view is that the lower interest rate alone will not be enough to change market sentiment. Systematics prepare improvements to existing products, while also designing new ones. Two positive interventions stand out. One is the new products which offer the possibility of financing up to 90% of the commercial value of the property (instead of 70-80% today). The other is the lowest interest rates that, depending on the bank and the product, will start at 3%.
Like almost everything in the banking industry, the improvement in financing conditions is gradual. Already, since March we see interest rates have fallen by 0.1% – 0.2%. The longer the loan repayment period, the bigger discounts we see. Those in the know say that so far we haven’t seen anything. Everything before the summer will be the “warm-up” for what’s to come when the ECB starts its interest rate cuts in June.
Banks will not “trim” their margin much, but the ECB cuts are expected to be passed through to interest rates, in much the same way that increases were passed through in 2022. A basic estimate is that in 2025 we will see several mortgages with an interest rate close to 3%. This will make the overall financing cost cheaper. At the same time, a slight relaxation in the income criteria is expected, so that more people can receive the loans.
When a new loan application is evaluated, a comparison is made between the income and the expenses that the borrower has during the year, to judge whether he can bear the burden of repayment. Last year, to be approved for a loan, service costs had to be not much more than 25% of income. This is expected to rise to close to 30%, perhaps even 35%. The rationale is that the economy is doing well and there is not considered to be much risk that borrowers will suddenly struggle to repay their loans, at least not en masse.
Other sources believe that the real ceiling is 30% and not 35%, but in any case such a development would be positive. It is recalled that on March 21, the Bank of Greece announced new limits on housing loans, among which they should not grant loans whose annual servicing costs exceed 40% – 50% of the borrower’s annual income. Market experts unreservedly emphasize that at this juncture no systemic bank will come close to these limits.
Note that the rest of the criteria will remain strict, with the same logic that they entered during the Memoranda era. Borrowers will receive loans that according to banking standards they will be able to repay. The “Wild West” of 2005 is not expected to return, for the good of both borrowers and banks.
New “cheaper” products
Given that 1 out of 3 mortgages given by systemic banks is given by the National Bank, its new product for the purchase of real estate by young people up to 45 years of age is interesting. It is a mortgage loan with preferential terms, called “My First Home” and requires a lower equity participation, with just 10% of the commercial value of the property. This means the bank is lending up to 90% of the property’s value, when currently the average equity is close to 67%.
This means that for the purchase of a property with a commercial value of 200,000 euros, the bank will lend up to 180,000 euros, so the borrower only needs to have 20,000 euros in hand.
Based on AD of 67%, banks currently lend around 134,000 euros and the borrower must have equity of around 66,000 euros, more than three times the amount. At the same time, a long loan duration of up to 40 years is offered, the possibility of choosing a fixed interest rate starting from 3%, exemption from the fee for examining the loan request and an additional preferential interest rate and zero costs for an “EXPRESS” personal loan to cover additional expenses related to the residence. This new loan incorporates many of the improvements we expect to see over the next few years, across more products.
In constant decline disbursements
Experts of the developments emphasize that, beyond the developments at the ECB, there are many and good reasons that push the banks towards cheaper mortgages. A little bit of “healthy competition”, a little bit of government pressure to grant more mortgages and a lot of the fact that disbursements are in a steady decline, significantly lower even compared to the image of the market just two years ago.
Last year, around 1.19 billion euros were disbursed in housing loans. About 24 million euros less than 1.214 billion euros in 2022 and a far cry from 14 billion euros in 2008 or 15.2 billion euros in 2007. To understand how far today is from the “golden times” , in November 2005 1.576 billion euros were given in housing loans (in one month). The best month of the last three years was December 2021 with 158 million euros. The difference is staggering. On average we have fallen from almost €1 billion a month to €1 billion a year, despite the fact that property prices have reached higher levels since then.
While we are not expected to return to pre-Memorandum levels, at least not this decade, the market needs banks to increase lending. Also, for their part, the bank managements seem to see that there is room for new “green” loans in the system, now that the issue of “red” ones seems to have been largely resolved.
Banks have cheap cash near record levels (low-interest deposits), are no longer at risk, and have a plan to increase their profits by “returning” to areas that have previously been drivers of growth, such as mortgage lending.
Mortgages with variable interest or fixed up to 1 year
| Period | Interest rate |
| 10/08 | 5,92% |
| 01/23 | 3,90% |
| 02/23 | 3,98% |
| 01/24 | 5,47% |
| 02/24 | 5,48% |
|
Fixed interest rate 20 years old |
Comparison of the cost of a new loan of 100,000 euros All energy property categories |
|||||
| Bank | Program | Monthly Dose | Interest rate | Total interest | Total amount | |
| National Bank | IT WAS
STABLE |
639,15€ | 4,5% | 53.396,00€ | 153.396,00€ | |
| Eurobank | Mortgage Loan | 628,34€ | 4,3% | 50.801,60€ | 50.801,60€ | |
| Piraeus Bank | Mortgage Loan | 617,64€ | 4,1% | 48.233,60€ | 148.233,60€ | |
| Alpha Bank | Alpha Residence | 644,59€ | 4,6% | 54.701,60€ | 154.701,60€ | |
Source: moneyonline.gr
|
20 year floating rate |
Comparison of the cost of a new loan of 100,000 euros All energy property categories |
|||||
| Bank | Program | Monthly Dose | Interest rate | Total interest | Total amount | |
| National Bank | HOME PRIVILEGE | 702,65€ | 5,64% | 68.637,08€ | 168.637,08€ | |
| Eurobank | Mortgage Loan | 717,01€ | 5,89% | 72.081,94€ | 172.081,94€ | |
| Piraeus Bank | Mortgage Loan | 705,51€ | 5,69% | 69.323,16€ | 169.323,16€ | |
| Alpha Bank | Alpha Residence | 728,60€ | 6,09% | 74.863,68€ | 174.863,68€ | |
Source: moneyonline.gr
| Fixed interest rate 10 years
(floating interest rate 10 years) |
Example of a new loan of 180,000 euros
All energy property categories |
|||
| Bank | Program | Monthly Dose
Stable (Floating) |
Interest rate
Stable (Floating) |
Total amount |
| National Bank | My First Home (up to 45 years old) | 1.102,18€ (1.229,73€) | 4% (6,39%) | 279.829,20€ |
| Eurobank | Mortgage Loan | 1.111,74€ (1.207,13€) | 4,1% (5,89%) | 278.264,40€ |
| Piraeus Bank | Mortgage Loan | 1.083,19€ (1.182,03€) | 3,8% (5,69%) | 271.826,40€ |
| Alpha Bank | Alpha Residence | 1.102,18€ (1.207,80€) | 4% (5,99%) | 277.197,60€ |
Source: moneyonline.gr
| Fixed interest rate 10 years
(floating interest rate 10 years) |
Example of a new loan of 50,000 euros
All energy property categories |
|||
| Bank | Program | Monthly Dose
Stable (Floating) |
Interest rate
Stable (Floating) |
Total amount |
| National Bank | My First Home (up to 45 years old) | 306,16€ (333,99€) | 4% (5,89%) | 76.818,00€ |
| Eurobank | Mortgage Loan | 308,82€ (335,31€) | 4,1% (5,89%) | 77.295,60€ |
| Piraeus Bank | Mortgage Loan | 300,89€ (328,34€) | 3,8% (5,69%) | 75.507,60€ |
| Alpha Bank | Alpha Residence | 306,16€ (337,02€) | 4% (6,09%) | 77.181,60€ |
Source: moneyonline.gr
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