Few were betting on a rise in interest rates of this depth, double what was announced. The decision of the European Central Bank (ECB) to raise key rates by 50 basis points, up to 0.5%, will have an effect on the euribor and, therefore, in the cost of financing some 4.1 million variable-rate mortgages referenced to the index in Spain.
The 12-month Euribor, which began the month of July below 1% in the daily rate, began to accelerate in recent days due to rumors of a possible more aggressive rate hike by the ECB, which has finally materialized with an increase of 50 points basic instead of 25. Thus, the indicator chains five sessions above the 1% barrier. Yesterday, on the eve of the historic meeting of the ECB, it marked its annual maximum at 1.164%. Today, before knowing the decision of the monetary authority, it has softened up to 1.142%. The provisional monthly average stands at 0.971%, well above the -0.491% of just a year ago, which entails a substantial increase in the cost of variable loans that have to be reviewed, since their interests are calculated with the Euribor .
Thus, the prospects are not at all rosy for the around 4 million variable rate mortgages in Spain, which represent 400,000 million outstanding mortgage balance. A loan of 180,000 euros over 25 years with a spread of 1% will go from paying 640 euros per month to 760 euros, which means 120 euros more per month and about 1,440 euros more per year.
“The main victims will be those who have signed a variable mortgage, because now it will cost them more money to repay their loan. It will also be noticed by those who want to buy a home, because it will cost them more to get a mortgage, and those who want to sell their house, since the sale of real estate could slow down. The most benefited are the savers, who will be able to mitigate inflation in some way”, explain the experts of the financial product comparator HelpMyCash.comwhich suggest that the rise in official interest rates “will trigger the Euribor”.
The forecast of most experts is that this 12-month Euribor will close this year close to 1.50% and that it will approach or exceed 2% in 2023. However, in this environment, it does not seem unreasonable that it will reach 2% in the next six months, they underline from HelpMyCash.com. “If rates rise more and the Euribor continues its upward trend, these mortgages will become more and more expensive. And if families have to spend more money to pay for their house, they will have less to spend and, therefore, consumption will slow down. “, they point.
The Euribor continues a rise that began in mid-February, when the ECB changed its discourse on the inflation. The invasion of Ukraine further unraveled the record-breaking general rise in prices, tightening faster than expected the monetary policy of the main central banks.
The ECB’s change of course has pushed up debt yields and stressed the interbank market, also boosting the Euribor, which last April touched positive values for the first time since 2016. In mid-June it reached 1% in daily rate for several days, although it closed the month at 0.852%. Now, it seems that the index is consolidating above the 1% threshold, although in recent sessions the price has been a roller coaster. At the moment, the monthly average stands at 0.971%. If it closed like this, it would be the largest record since July 2012.
fixed mortgages
Holders of fixed mortgages will continue to pay the same, since the fixed rate is not affected by fluctuations in the Euribor. However, those who want to opt now for a fixed-rate mortgage are going to find increasingly higher prices, given that financial institutions have already begun to make these loans more expensive and will continue to do so.
The banks want to incentivize the contracting of the variables, for which they are raising the interest of the fixed ones. According to HelpMyCash, it is most likely that the fixed rates will exceed 2.5% or 3% in a few months and that the interests of around 2% that some entities still offer will disappear from the map. “Therefore, if a person plans to take out a fixed mortgage, it is advisable to close the operation as soon as possible,” they say.
Juan Pedro Zamora, director of business development at Hipoo, indicates that, “although it is true that until a few weeks ago a change from variable to fixed mortgage was very attractive due to the low fixed rates that prevailed in the market, in Currently, with a very high fixed rate, this circumstance is no longer advisable”. However, he advises reviewing the interest rates and the contracted conditions for those who already have a mortgage, in order to explore the different possibilities that may arise from a mortgage renegotiation.
In general, borrowing is going to be more expensive and that also affects personal loans, although the interest on the loans will probably rise little by little and the impact will be less than in mortgages.
The rise in rates may have another effect on mortgages: it is likely that we will see fewer and fewer loans that finance more than 80% of the purchase value of a home, say the experts at HelpMyCash.
From Hipoo they recommend “taking into account the relationship between the financing to be obtained and the applicable rates during the life of the loan”. It is especially important to carry out a preliminary study in which the purpose of the purchase is set in advance, whether as a private home, first or second home, or as an investment home, with the aim of analyzing the costs of the loan, defined according to each casuistry, they explain.
savers
The rise in interest rates should cause an increase in the profitability of savings products, such as fixed-term deposits and accounts. In fact, in recent weeks several banks have already gone ahead and improved the profitability they pay for savings. However, not everyone is going to follow the same strategy: those who need liquidity or want to attract customers are going to be the first to raise the interest on their deposits, while the big banks are going to take longer to do so. Therefore, it is likely that the increases will not occur at the same time or immediately.
With the current inflation of 8.6% in the euro zone, a one-year deposit at 1.45% APR, which is one of the best returns that can currently be achieved on the Raisin platform, where deposits of European banks, falls short. “Although it seems that it is not very profitable, it is much more than what could be achieved a few months ago and it is a way to mitigate the effects of inflation,” explains Laurent Amar, CEO of HelpMyCash.com.
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