Variable mortgage rates expected to drop further, homeowners set to benefit

The average variable mortgage rate is expected to decrease by another 0.2 to 0.25 percentage points over the next six weeks, according to Oscar Noorlag, a financial expert with advisory firm Van Bruggen Adviesgroep. A reduction of nearly half a percentage point would lower monthly mortgage payments by tens of euros, with homeowners on a 400,000 euro variable mortgage set to save between 50 and 100 euros per month.

The recent decline in mortgage rates is linked to the European Central Bank’s (ECB) decision to cut interest rates in an effort to stimulate the eurozone economy. While the variable mortgage rate has fallen significantly, the fixed mortgage rates have decreased only modestly. The average rate on a National Mortgage Guarantee (NHG) loan with a ten-year fixed interest rate has dropped by just 0.06 percent over the past two months.

“Variable mortgage rates are more responsive to ECB rate cuts compared to fixed rates,” Noorlag noted. “This decline in fixed rates is much smaller than the reduction in the variable mortgage rate, but we expect further movement in fixed rates in the coming weeks.”

The ECB has reduced its interest rates by a full percentage point since June, bringing its benchmark rate down to 3 percent. While mortgage rates have followed this decline, they have done so at a slower pace. The average variable mortgage rate has dropped by only 0.65 percentage points since June, with many lenders typically raising their variable rates faster than they lower them, Noorlag explained.

Looking ahead, Noorlag anticipates that more changes in mortgage rates will occur at the start of 2025 rather than in the final weeks of 2024. He emphasized that these changes could create more opportunities for homeowners and buyers alike.

ECB President Christine Lagarde indicated on Monday that further rate cuts are expected in 2025, as inflation continues to slow towards the central bank’s target of 2 percent. Analysts expect that Lagarde could announce another 0.25 percentage point rate cut in late January, with additional reductions of 0.75 to 1 percentage point later in the year to provide a boost to the slow-growing economy.