In June 2025, the European Central Bank (ECB) made headlines by cutting its key interest rate for the first time in several years. This move was expected to bring relief to borrowers, lower mortgage payments, and stimulate demand in the housing market. Yet, many European homeowners are still paying more on their mortgages—and in some cases, payments are rising. So why hasn’t the ECB’s decision translated into lower costs for homeowners?
📉 The ECB’s Move Explained
On June 6, 2025, the ECB reduced its main refinancing rate from 4.00% to 3.75%, while the deposit facility rate was cut to 3.25%. The decision reflected cooling inflation and a slowdown in economic growth across the euro area.
In theory, lower central bank rates should reduce borrowing costs across the board, including mortgages. But in practice, many homeowners haven’t felt the benefits yet, and the reasons are both structural and market-based.
🧾 Existing Mortgages Remain Expensive
1. Variable-rate Mortgages
In countries like Spain, Portugal, Italy, Poland, and much of Eastern Europe, variable-rate mortgages are common. These are typically indexed to benchmarks like Euribor, which, despite the ECB’s rate cut, remained around 3.85% in June 2025.
Due to the delayed transmission of ECB policy, and depending on when a borrower’s interest is reset (e.g., annually or semi-annually), monthly payments may remain unchanged for months. Many homeowners won’t feel the impact until well into 2026.
2. Fixed-rate Mortgages Locked at High Levels
In countries such as Germany, France, the Netherlands, and Austria, most homeowners have fixed-rate mortgages. Those who took out loans during 2022–2023 locked in rates of 4–4.5% when inflation and ECB rates were peaking. For these borrowers, today’s ECB cut has no impact—their contracts are fixed for 10 to 20 years.
💸 Bank Margins and Lending Conditions
1. Bank Profit Margins Remain High
Even as base rates drop, commercial banks are in no rush to reduce mortgage interest rates. To protect their margins, many lenders maintain elevated spreads between ECB rates and consumer loan rates. For new borrowers, this means that mortgages are still expensive—especially when bank risk models factor in market volatility and inflation uncertainty.
2. Stricter Lending Criteria
In response to higher default risks and tighter regulations, banks in countries like Finland, Hungary, and Slovakia are requiring larger down payments—sometimes 30–40% of the property value. This pushes buyers into shorter loan durations with higher monthly payments or discourages purchases altogether.
📈 Rising Housing Costs Offset Rate Relief
Despite the monetary tightening of 2022–2024, housing prices in many European cities have continued to rise, especially in urban centers with constrained housing supply. This trend has been driven by a lack of construction, zoning delays, and labor shortages.
Even if rates go down slightly, the cost of buying and owning a home remains historically high. For example:
- Paris: average apartment price ~€510,000
- With a 20% down payment and a 25-year mortgage at 3.9%: monthly payment ~€2,150
- Lowering the rate to 3.75% reduces payments by just ~€30–40/month—barely noticeable compared to rising insurance and maintenance costs
🌍 Country-by-Country Divergence
The impact of the ECB’s rate cut varies significantly depending on national mortgage structures:
| Country | Typical Mortgage Type | Impact of Rate Cut |
|---|---|---|
| Germany | Fixed rates (10–20 yrs) | No change in payments |
| Spain | Variable rates (Euribor) | Delayed effect expected |
| France | Fixed or state-supported | Minimal impact |
| Italy | Mixed fixed/variable | Mixed outcomes |
| Poland | Variable + subsidies | Payments rising as aid ends |
| Finland | Variable rates | Sharp rise in 2024, stabilizing now |
🏠 Rental Market Pressure
With mortgages remaining expensive, many Europeans have turned to the rental market. But rental prices have surged as well, due to growing demand and limited supply:
- Dublin: +11% YoY
- Amsterdam: +9%
- Milan: +7%
- Prague: +13%
As a result, renters are increasingly tempted to buy—but face affordability barriers due to tight lending and high property prices. This creates a vicious cycle: expensive mortgages push people to rent, and expensive rents push them to try to buy.
📊 Outlook and Expert Forecasts
According to analysts at ING and Erste Group:
- ECB rates could decline further to 3.25% by late 2025
- The real consumer impact is likely to become visible in 2026
- First-time buyers and young families remain the most financially exposed
Some EU member states are discussing incentives for housing construction and targeted mortgage subsidies, but most of these programs will take time to implement and scale.
🧾 Conclusion
The ECB’s rate cut is an important signal of monetary easing—but its immediate effect on household finances is limited. Mortgage structures, bank behavior, and property market dynamics all contribute to a lag in benefits reaching homeowners.
To truly reduce housing costs, Europe will need more than monetary policy. A combination of lower rates, increased housing supply, and more flexible lending is needed to make homeownership affordable again.
Until then, millions of homeowners across the continent must cope with high monthly costs, despite the central bank’s efforts to ease financial conditions.
