Banks are taking drastic measures to stop a new wave of “red” loans, freezing – for about a year – the base rates (one- and three-month Euribor, libor, and ECB base rate), on the basis of which mortgages are priced.

According to competent sources, the bankers accepted a proposal by the Minister of Finance, Christos Staikouras, to “freeze” interest rates, the successive increases of which have excessively increased servicing costs for borrowers.

The main axes of the plan are the following:

• The measure is horizontal, i.e. it applies to all floating rate mortgages, including those in Swiss francs, that are being served. It does not generally apply to loans that have a mortgage on the first home, to small businesses, while those that will be granted subsequently are also excluded.

• The interest rate will be locked on a specific date agreed upon by the banks. For example, the end of last March. The installments, therefore, that will have to be paid from now on, will be invoiced based on the interest rate in question – regardless of the increases that may follow – plus the margin charged by the respective bank. In this way, loans with a floating interest rate are converted into a fixed one, since for a year the borrowers will know exactly the amount of the installment they have to pay.

• If within 12 months there is a de-escalation of the reference interest rates, then the program will be interrupted and the banks will pass the benefit on to the borrower.

• The cost to the banks is estimated at 200 million euros and is added to the amount they have already budgeted for subsidizing 50% of the increase to vulnerable borrowers, ie around 120 million euros.

According to information from newmoney.gr, the intervention in the reference interest rate is said to have the “green light” from the Bank of Greece (BoG), while it remains to be clarified whether – in a second year – the approval of Europe will also be required.