ECB: Why the October 29 Meeting Will Be Decisive for Mortgage Rates

The ECB has already tightened its monetary policy

On 10 September, the European Central Bank raised its three key interest rates by 25 basis points.

Since 16 September, the deposit facility rate has stood at 2.50%, the main refinancing operations rate at 2.65%, and the marginal lending facility rate at 2.90%.

The next monetary policy meeting will take place on 28 and 29 October, followed by a press conference.

This meeting therefore comes only a few weeks after the ECB’s September policy shift.

Why this directly matters for real estate

The ECB does not directly set the mortgage rates offered by French banks.

The transmission mechanism is more complex.

Banks determine their lending rates based on several factors, including their funding costs, changes in bond yields, their margins, credit risk and commercial competition.

However, the ECB’s monetary policy plays an important role in shaping this environment.

When monetary conditions become more restrictive, bank funding can become more expensive. Mortgage rates may then come under upward pressure.

For a homebuyer, even an increase of a few tenths of a percentage point can reduce the amount they are able to borrow for a given monthly repayment.

The impact on the property market can therefore follow this chain:

higher borrowing costs → lower borrowing capacity → reduced solvent demand at unchanged property prices → potentially greater room for negotiation → possible downward pressure on certain property prices.

However, this mechanism is not automatic. In areas where demand remains strong and housing supply is particularly limited, property prices may prove more resilient.

Three scenarios are possible

The first scenario would be another increase in the ECB’s key interest rates. This would reinforce the signal sent in September and could strengthen expectations that interest rates will remain high for longer.

The second scenario would be to keep rates unchanged, while maintaining a cautious stance on inflation.

The third scenario would also involve keeping rates unchanged, but with communication suggesting that the ECB considers the current level of interest rates sufficient.

This final scenario could be interpreted differently by financial markets.

The ECB itself regularly emphasises that its decisions are taken meeting by meeting and that it does not commit in advance to a predetermined interest-rate path.

Inflation will be at the heart of the decision

The challenge stems in particular from the recent acceleration in prices across the euro area.

According to Eurostat’s flash estimate, annual inflation rose to 3.8% in September, up from 3.2% in August.

This increase was mainly driven by energy prices, which are estimated to have risen by 18.8% year-on-year.

The ECB must therefore balance two risks: allowing high inflation to become entrenched, or tightening financial conditions to such an extent that it excessively restricts financing across the economy.

What homebuyers should really be watching

The ECB’s decision is only the first step.

For individual borrowers, the key indicator will then be how French banks adjust their mortgage rate schedules.

An increase in ECB rates does not therefore mean that mortgage rates will rise by the same amount the following day.

However, it can change the financial environment in which banks determine their lending offers.

Key takeaways

• The ECB raised its key interest rates by 0.25 percentage points in September.

• Its next monetary policy decision will be announced on 29 October.

• ECB interest rates indirectly influence mortgage lending conditions.

• Tighter monetary policy can reduce households’ purchasing power.

• The key factor to watch afterwards will be how French banks respond.