Borrowing is set to become more expensive for Greek households and businesses after the European Central Bank raised interest rates again, adding pressure to mortgage holders, consumers and companies already facing elevated financing costs.
The ECB increased its three key interest rates by a quarter percentage point. From Sept. 16, the deposit-facility rate will rise to 2.50%, the main refinancing rate to 2.65% and the marginal lending rate to 2.90%.
The move follows a renewed pickup in inflation, driven largely by energy prices and the economic fallout from the war in the Middle East. Eurozone inflation rose to 3.3% in August, while Greece recorded a higher rate of 3.7%, prompting the ECB to tighten monetary policy again.
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The most immediate impact will be felt by borrowers with floating-rate loans. Greek mortgages and corporate loans linked to Euribor are particularly exposed because increases in benchmark rates can feed directly into monthly repayments. Borrowers who have locked in fixed rates, by contrast, are protected for the duration of their fixed-rate period.
The effect of a quarter-point increase can appear modest but adds up over time. On a €100,000 mortgage with 20 years remaining, an increase in the interest rate to 3.75% from 3.50% would lift the monthly payment to roughly €593 from €580 - about €13 more a month, or more than €150 annually. The actual impact depends on the Euribor benchmark, the bank’s lending margin and the terms of each contract.
Greece’s banking market presents another challenge: Higher rates have historically passed through to borrowers more quickly than to depositors. That means households can see the cost of mortgages and other loans rise relatively rapidly, while returns on their savings may increase more slowly and by less.
Signs of higher borrowing costs are already visible. The average interest rate on outstanding loans in Greece rose to 4.81% in July, from 4.74% in June and 4.63% in May. Rates on outstanding mortgages with maturities of more than five years increased six basis points to 3.72%, while comparable business-loan rates rose seven basis points to 4.38%.
Attention will now turn to whether Greek banks can maintain relatively competitive pricing on new mortgages. The average rate on new floating-rate housing loans stood at 3.53% in July, below the eurozone average of 3.69%. Greek mortgage rates had actually declined from June even as borrowing costs elsewhere in the currency bloc were moving higher.
Businesses, particularly small and midsize companies, face greater pressure. New floating-rate corporate loans with a defined maturity carried an average rate of 4.21% in Greece in July, rising to 4.45% for small and midsize enterprises. The gap with the rest of the eurozone is especially pronounced for smaller loans. Greek business borrowing of up to €250,000 carried an average rate of 5.07%, compared with 3.83% across the eurozone - a difference of 1.24 percentage points.
For a small company with €200,000 of debt, a quarter-point increase translates into roughly €500 in additional annual interest costs in a simplified calculation assuming the outstanding balance remains unchanged. For larger borrowers, the additional expense rises accordingly.
Consumers face an even steeper hurdle. New consumer loans in Greece already carried an average interest rate of 10.45% in July, compared with 7.60% across the eurozone. Following the ECB’s latest move, borrowing costs for some Greek consumer-credit products could move above 11%, further squeezing household budgets at a time when inflation is again eroding purchasing power.
