2023-09-14 21:42:55
There is no truce. The new – and it seems the last – turn of the screw that the European Central Bank (ECB) has forced by raising interest rates by 0.25 points to 4.5% will once again impact the domestic economy of millions of citizens: that they have a mortgage, yes; but also those who have taken out a loan to finance their usual purchases (from vacations to a car to an appliance); and even, and for the better, those who keep savings in their bank accounts.
The ECB’s movement seeks to fight against inflation that remains uncontrolled and does not care that the daily economy could cool down due to high rates. It has not yet had a full impact on the growth of the euro zone and there is barely a glimpse of a recession which, with the current employment data, seems to be digestible for the monetary institution.
Therefore, mortgages will continue to rise. They have been doing it for almost a year and a half. In April 2022, the Euribor was positive for the first time in six years and that is when the escalation of real estate loan payments began. It anticipated the first official rate increase, in July of that same year, and since then it has continued in its upward spiral until reaching an average so far this September of 4.07%. The main index by which mortgages are governed experienced a substantial jump in its daily rate this Thursday, up to 4.15%, a few hours before learning of the ECB’s decision. It was a preview of what Frankfurt was going to announce.
More moderate fee increases
Predictably, the Euribor will continue its increases over the coming weeks until it reaches a level similar to the official rates, 4.5%. Any household that must review its mortgage from now on will see its monthly payment increased as the Euribor remains above the levels of twelve months ago, when it was around 2.2%. In reality, the increase in installments will not be as impactful as the one that mortgage holders have had to assume until now, but in any case they will have to allocate more money to their loans. For an average of 120,000 euros per year with 20 years remaining with a Euribor differential plus one point, they will pay almost 800 euros compared to the 665 that they would be paying until now for that same mortgage in the last year. They are about 135 euros more per month, which is added to the 200 they already assumed in the last review.
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Expectations pass because it will not be until April 2024 when the Euribor gives the first joys to mortgage holders. It will be at that moment when the index will be at the same level or below that of the same month of this year, around 3.75%. Until then, any mortgage review will mean more spending on these loans.
Finance an expensive daily life
Those who will need financing to make minor purchases, even day-to-day, will also see the cost of these operations increase. For example, the acquisition of an appliance, a piece of furniture, an extraordinary expense at the supermarket or, to elevate the concept, a vehicle, will be much more expensive. As was the case with mortgages, the installments of these financing products had already experienced increases in recent months. But they won’t be the last.
The average interest rate that financial institutions had been applying for all types of consumer loans exceeded 8% in July, according to the latest updated data from the Bank of Spain. A year before, it barely moved at around 6.8%. And twelve months before, at 5%. Therefore, requesting a loan of 3,000 euros over 24 months now means a disbursement of 256 euros in interest compared to 220 euros a year ago.
The new rate increase will cause a new rise in the interest on this type of loan, which will tend to get closer and closer to the level of 9%, almost four percentage points more than what was charged a year ago. In the case of ‘revolving’ credit cards (those in which a fixed fee is paid regardless of the debt, in exchange for a high interest), a rate of 18% applied, which will possibly be raised after the latest decision by the ECB.
The expected boost to deposits
Those who can benefit from the rate increase to 4.5% are savers with money in bank deposits. Although several months have had to pass for entities to accelerate the remuneration of these products, the current profitability is above 2.3% one year from now, according to the Bank of Spain. The most powerful increase has been registered between the months of March to June. Because until then, the payment for a deposit did not exceed 1%.
The bank has argued throughout this time that the characteristics of the Spanish market are those that have defined this deposit rate policy, generally with lower interests than in the rest of the EU, although with lower mortgages as well, as they point out. sector sources.
The pressure exerted by banking clients to negotiate an increase in the rates of their deposits, the outflow of capital towards other products such as Treasury Bills, together with the increase in the official interests of the ECB has accelerated this remuneration which, from Now, it may be increased even more.
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