This is how the rise to all-time highs in ECB rates will affect your mortgage
This Thursday, July 27, the European Central Bank (ECB) has once again raised official interest rates to continue with its objective of containing inflation at 2%. Currently, inflation in the euro area is at 5.5% and the underlying inflation data is worrying.
For this reason, the Governing Council of the ECB met again this Thursday to approve a rise of 0.25 points, the ninth in just one year, which is having significant economic repercussions.. The big question, especially for those people who have contracted a variable rate mortgage, is the following: how will this new increase impact? Will mortgage loan installments increase again?
What are the inflation forecasts?
“The Euribor has already reached 4.162% and there is a risk that it will exceed 4.5% in the medium term,” say the experts from the financial comparator HelpMyCash. Therefore, customers with a variable mortgage will see how their installments go up again. “The B side of the rise in interest rates is that the profitability of accounts and deposits is improving, so if you have savings, now you can earn more interest.”
It should be remembered that interest rates are like “the price of money”, that is, “what you have to pay to borrow money”, they explain. The increases that we have experienced in 2022 and that we continue to do so in 2023 are aimed at “controlling the inflationary spiral”.
The inflation forecasts of the European organization for the coming years, as included in the financial comparator, are the following: 5.4% in 2023, 3% in 2024 and 2.2% in 2025.
How will it affect mortgagees?
Undoubtedly, a new rise in rates directly affects the pocket of consumers, especially those who have mortgage debts. Likewise, “the new course of European monetary policy is also going to have a direct impact on people who want to buy a home, since, on the one hand, it will cost them more to get a mortgage and, on the other, it will to come out more expensive”, they indicate.
When rates rise, the Euribor, the mortgage reference index in Spain, will rise again. HelpMyCash forecasts suggest that this index could be between 4% and 4.5% during the third quarter of 2023. Likewise, they calculate that the quotas of certain consumers may rise up to 48%.
Analysts from the financial comparator point out that the ECB is likely to raise rates before the end of 2023 to 4.75%. “It wouldn't even be unreasonable for it to touch 5% at some point.”
How much will the fees go up in July?
With the Euribor data for June 2023, experts present the following example. For a mortgage of 150,000 euros, with a repayment term of 25 years and an interest rate of Euribor +1%, the fee to pay if the review is annual will rise to 252.47 euros. It will go from 625.03 euros to 877.50 euros per month. If the review is semi-annual, a more expensive fee will be paid, specifically 84.25 euros more per month, going from 793.25 euros to 877.50 euros.
And what could happen with the Euribor data for July? The provisional median value for this month is expected to be 4.156%. Therefore, taking into account the previous example, the fees would rise by 255.37 euros if the review is annual and 70.64 euros if it is semi-annual.