BarcelonaCitizens in debt with variable rate mortgages must find it impossible that only nine months ago the Euribor bottomed out and was close to -0.52. This data in the indicator would make your mortgages significantly cheaper: the Euribor (the price at which the main banks lend money) is the amount that is added – or subtracted – from the interest rate agreed between the bank and customer when signing a loan. Thus, if nine months ago someone signed a mortgage at Euribor +1%, they ended up paying 0.48% for the money the bank had granted them; nine months later they will pay 2.1% for this same loan.
This jump in the price of debt has come after months in which the specter of inflation has tainted the world’s major economies, especially since Russia’s invasion of Ukraine. As a measure to combat it by cooling the economy, central banks around the world have chosen to raise interest rates, with the Fed leading the way. In fact, when the European Central Bank announced in June that it would raise rates in July, it had already been months since the Euribor, precisely because of the expectation that this would happen, began to rise month after month at rates not seen in many years.
The data show (see graph) that in the last year this index to which most loans in Spain are referenced soared especially in the spring: in April it doubled and grew by 105%, in June it tripled with a rise of 196%, and the real boom came in May, when it went from 0.01% to 0.28% and multiplied by 22. In July, the Euribor rose again, and in August the trend continues upwards, chaining even six consecutive days of increases.
The mortgaged, however, have a little bit of good news to cling to after the bloodletting of recent months: with this month’s provisional average Euribor figure, August’s is the smallest month-on-month variation of last eight months In other words, the spring boom seems to be coming to an end. This is proven by the change in the last month: in July the index rose by 16% compared to June, while currently the increase compared to July does not reach 4%.
Users with variable rate mortgages have little room to improve their agreement with the bank. They can always try to take the mortgage to another bank, but all entities are raising their offers en bloc. Experts also do not recommend the second option on the table: switching from a variable rate to a fixed rate. This is because banks offer a fixed rate much higher than the current Euribor level (with offers ranging from Euribor +1.5% to Euribor +2.5%). What the experts do recommend to try to save on the mortgage in the midst of rising rates is to analyze the products linked to the mortgage, such as insurance, where discounts can often be obtained.
The increase in the price of loans is general, and this Thursday the newspaper acknowledged it Expansion. During 2022, the average mortgage rate is 1.7%, up from 1.38% last year, an increase of 23%. In consumer loans, the jump is more pronounced and the average rate (which is the sum of the Euribor plus the differential) has reached 6.5%, when last year it was 6.1% (an increase of 8%).
All of this will be noticed by customers from the moment their mortgage is updated (usually this happens annually or semi-annually), and it has a noticeable impact on their pockets. For example, with the average Euribor for the current month of August at 1.03%, the monthly installment of a loan of 180,000 euros for 25 years at a price of Euribor +1% would be paid at 765 euros, when until now it would have been paid at 639 euros. This means a difference of 126 euros per month, which is more than 1,500 euros per year.
Despite this increase, financial sources consulted by the ARA believe that very soon, next year, the rates could drop again. This forecast has two main assumptions. The first: the more than probable entry into recession of Germany from the end of this year due to its exposure to Russian hydrocarbons. The bad timing of the German economy (and the great influence of this country on the European Central Bank) suggests that there will be rate cuts to help the country’s economy.
The second: the more than likely drop in year-on-year inflation due to the base effect. The strong increases this year suggest that even if the increases continue next year, the inflation rate will most likely drop significantly. And with falling inflation, rates may come down again to encourage activity.