Cyprus Borrowers Shift to Fixed Loans Amid ECB Rate Hikes

The European Central Bank (ECB) has raised its key rates again this month, prompting Cypriot borrowers to shift towards longer fixed periods on their home loans.

According to data compiled by Philenews, the average mortgage rate in Cyprus reached a peak of 5.19% in January 2024, following an ECB-driven inflation fight.

The decision to opt for fixed or variable rates now allocates rate risk, with variable borrowers absorbing ECB moves through pass-through, while longer fixes defer it.

A worked example quantifies the stakes: on a €200,000 mortgage over 25 years, moving from an interest rate of 2% to 5% adds about €320 to the monthly repayment, taking total interest from roughly €54,000 to about €151,000, a difference of more than €96,000 over the term.

The ECB raised its key rates by 25 basis points on June 11 and again on September 10, citing Middle East conflict-driven inflation pressures. The deposit facility now stands at 2.50%, effective from September 16.