The ECB moves, but capital markets set the pace

The European Central Bank raised its deposit rate by 25 basis points to 2.25% on Thursday 11th June, marking the first interest rate hike in nearly three years. The decision was unanimous and widely anticipated. ECB President Christine Lagarde offered no commitment to future steps, reiterating that the central bank would remain data-dependent and keep all options open. Markets, however, have already made their own judgement: a further hike in September is broadly priced in, with some analysts flagging July as a possibility.

For Germany's property market, the decision itself changes relatively little. "The capital markets have already priced in the new reality of inflation and interest rates," said Oliver Kohnen, managing director of mortgage broker Baufi24. Ten-year Bund yields have been consistently above 3% for some months — their highest level in approximately fifteen years — and average mortgage rates on ten-year fixed loans broke the 4% mark in May, reaching 4.02% according to Baufi24 data. The ECB has formally confirmed what capital markets had already anticipated. The actual repricing happened earlier.