Buyers and owners of residential property who negotiated new mortgage loans in August 2009, nearly twice as often opted for short-term fixed rate mortgages (with a maximum of one year) than one year previously. Over 27 percent of the total amount involved in newly negotiated mortgages had a short-term fixed rate, as against 14 percent in August 2008. The percentage of mortgage loans with a fixed-rate period exceeding 5 years, on the other hand, dropped from 68 to 39.
Volume of newly negotiated residential mortgages by length of fixed-rate period
Short-term mortgage interest rate much lower
The increase in the percentage of newly negotiated residential mortgages with a fixed rate not exceeding one year coincides with a substantially lower short-term mortgage rate. Between October 2008 and April 2009, the short-term mortgage rate was reduced from 6.0 to 3.5 percent. Between April and August, the rate increased to 4.0 percent, but is still far below the level of the fixed long-term mortgage rate.
Mortgages with fixed term interest rates exceeding one year dropped far less rapidly between October 2008 and April 2009. This is caused by the fact that these rates are more loosely related to the repo rate of the European Central Bank (ECB). In the period October 2008–May 2009, the ECB lowered its most important interest rate step by step from 4.25 to 1.0 percent.
Repo rate and mortgage rate by fixed-rate period
In 2004 and during the first six months of 2005, when short-term fixed mortgage rates were also much lower than long-term rates, consumers frequently opted for short-term fixed-rate mortgage loans.