Historic decision

What the ECB interest rate turnaround means for savers and house builders

(Bild: stock.adobe.com)

As expected, the European Central Bank (ECB) initiated a turnaround in interest rates on Thursday. Significantly lower inflation rates allow the monetary authorities to lower the key interest rate, which had previously been raised to a record 4.5 percent, to 4.25 percent. What this means for house builders, savers, holidaymakers and the economy:

Bekommen Sparer weniger Zinsen?

"The ECB cut will have an immediate impact on overnight money and fixed-term deposits," says Max Herbst from financial consultancy FMH. This is because the ECB is likely to cut not only the key interest rate, but also its deposit rate. This determines how much money banks receive for the money they have parked with the ECB. Many banks have passed on a large part of this interest rate to their customers over the past two years. Now the deposit interest rate is likely to be reduced again for the first time from 4.0 to 3.75 percent. In anticipation of this, some banks have already lowered their interest rates for overnight and fixed-term deposits. "Only very few banks with top interest rates have reason to pass on the reduction," said expert Herbst. "But many other banks will also take advantage of this and further reduce their low interest rate offers in the investment sector."

Werden Ratenkredite billiger?

Yes, "installment loans will also weaken over the next few weeks - but not immediately," said financial advisor Herbst. "If investment interest rates fall, consumer loans will also fall if the banks work fairly, as it will be cheaper to purchase the financing money."

Was bedeutet das für den Aktienmarkt?

Lower interest rates are usually good for share prices. On the one hand, companies are relieved of borrowing costs, which tends to increase their profitability. On the other hand, interest-bearing securities such as bonds or fixed-term deposits become less attractive because they yield less - which in turn makes shares more popular. "However, investors should not assume that this interest rate cut will be a positive impulse for the stock market per se," emphasized Thomas Altmann from the investment boutique QC Partners. "The stock markets have already priced in a first interest rate cut in June months ago."

The ECB's interest rate outlook is therefore likely to be decisive for the stock markets. "One thing above all must not be forgotten in the interest rate debate: At the beginning of the year, the consensus estimate was six to seven interest rate cuts this year," said Altmann. "Currently, this forecast still stands at two to three rate cuts." Nevertheless, the leading German index DAX has reached 30 new all-time highs since the beginning of the year. "So it shouldn't surprise anyone if the actual start of interest rate cuts doesn't lead to renewed price gains."

Was ist mit den Bauzinsen?

They have risen again in recent weeks despite the prospect of the ECB's key interest rate falling. In June, the average interest rate for a ten-year fixed rate was 3.72%, according to the online platform Statista. At the beginning of the year, it was only 3.42 percent. "If you want to know how building interest rates are developing, you shouldn't look at the prime rate, but at the inflation rate," says financial advisor Herbst. This has recently risen again in the eurozone, to 2.6 percent. One consequence of this is that investors are demanding more money if they are to buy the German government bond, which is the main bond in Europe. "If the yield on the ten-year German government bond rises because investors are demanding higher interest rates, the Pfandbrief yields will also rise - and therefore ultimately also the interest rates on building loans," explained Herbst.

The ECB cut will have an immediate impact on overnight money and fixed-term deposits.

Max Herbst von der Finanzberatung FMH

Kommt die schwache Konjunktur jetzt in Schwung?

Lower lending rates can give the economy a boost. "The improved financing conditions for companies will boost private investment," expects economist Ulrike Malmendier. However, in its spring forecast for the German government, the German Council of Economic Experts expects that the interest rate cut will not provide support until 2025 at the earliest. "Interest rate cuts affect the economy with varying delays," said Commerzbank Chief Economist Jörg Krämer. "On average, it takes a good year for the economy to benefit from lower interest rates."

Welche Branchen profitieren besonders?

"In principle, all sectors benefit from low interest rates because companies can obtain borrowed capital more cheaply and invest more," explained Commerzbank expert Krämer. "However, interest rate sensitivity is certainly greatest in the real estate industry because developers generally need a lot of borrowed capital." This was seen in reverse after the ECB's massive interest rate hikes, when demand in residential construction collapsed by around a third.

Wird der Euro gedrückt und werden Reisen in andere Währungsgebiete teurer?

Experts do not expect any major consequences here. "Interest rate cuts make currencies less attractive in relative terms compared to other currency areas, i.e. they tend to weaken," said Thomas Neukirch, Head of Strategic Asset Planning at asset manager HQ Trust. "However, as this is only a small step and many other factors also influence exchange rates, we do not expect any major consequences for holidaymakers in the short term."