The latest statements from members of the European Central Bank (ECB), including those of its president Christine Lagarde, point to more interest rate hikes in 2023. Thus, the 12 month Euribor continues its bull run, although at a somewhat more relaxed pace than in the last weeks of last year. index ends January with an average of 3.337%, above the 3.18% in December, and is on the way to 3.5%. Variable-rate mortgages will continue to suffer a sharp increase in the cost of their loans. The difference with the data that the Euribor marked just a year ago, when it was still negative at -0.477%, will mean a significant increase in the mortgage bill of 53% on average.
Specifically, an effective interest rate of 0.523% was being applied to a 150,000-euro mortgage with a term of 25 years with a differential of 1% over the Euribor. With the January review, the cost of financing will go to 4.337%. The monthly fee will increase from 533 euros to 819 euros. They are 286 euros more per month or 3,432 euros per year. In the event that the amount of the mortgage rises to 300,000 euros, the annual increase will be more than 6,800 euros. “This month will be black for those who have a variable-rate mortgage and have to do the annual review of their bills because they will suffer the highest rise in the last 12 months,” says Simone Colombelli, director of iAhorro Mortgages.
From the HelpMyCash.com comparator they remember that the increase in the monthly installments “will be higher or lower depending on how much amount is pending, how much time remains until the end of the repayment term and what the interest rate is”. The impact of the Euribor affects to a greater extent the less old ones.
The markets have begun to discount a slower pace in interest rate rises given the moderation of inflation and stagnant growth. However, in the case of the ECB, and taking the most recent messages as a reference, it seems that there are still several increases of 50 basis points left. In addition, the CPI for Spain rose one tenth, to 5.8%, at the start of this year, which has triggered expectations of faster increases in the governing rates in the euro zone. Antonio Pedraza, president of the Financial Commission of the General Council of Economists, highlights “the leap that the Underlying inflationwhich is the one the ECB pays most attention to”. Joaquín Robles, an analyst at XTB, points out that “inflation in the euro zone continues to be well above its 2% target and at the December meeting, Lagarde reiterated that there is still a long way to go to be done, which could be interpreted as the rates could reach around 3.5%-4% in the middle of this year”.
In January, the Euribor has not dropped for a day from the 3.3% barrier and today it registered its monthly maximum at 3.415% after several moderation sessions. But, pending what the ECB decides this Thursday, the indicator has resumed rising. In a matter of half a year, the monetary authority has raised its interest rates by 250 basic points, the fastest increase in the entity’s history. Consequently, the Euribor, closely linked to the movement of interest rates, has experienced an unprecedented rise. Although it started 2022 hovering around negative historical lows, it now exceeds the 3% threshold, standing at levels of December 2008.
Experts expect the Euribor to maintain its rising streak during the first half of the year. “Due to the core and the inflation forecasts, we expect the ECB to raise rates twice in the first semester, which will condition the Euribor, which in the medium term will stand at 3.5%. If inflation is not controlled and there is more rises from the ECB throughout the year, the Euribor could go to 4% in the worst case”, predicts Pedraza. At HelpMyCash.com they believe that the Euribor could be at 4% at the end of the first quarter or beginning of the second.
The increase in the Euribor is a severe blow for those already mortgaged at a variable rate, while those seeking a mortgage face great uncertainty. Fixed rates are getting more expensive and variable rates are gaining appeal, but the big question is what exactly the Euribor will do. Last year it was shown that making predictions about the index is very complicated.
Those who cannot afford their variable mortgage payments have some alternatives, such as trying negotiate with the bank before the quota revision is applied. And if certain requirements are met, it is possible to take advantage of the Government’s measures for mortgaged people in distress.
Meanwhile, banks have hardly changed their mortgage offer these weeks. “This month of January almost nothing has changed. Little by little we are returning to normal banking dynamics, to changes in commercial offers once a quarter and not every week,” says Colombelli. Of course, entities seek to promote the contracting of variable mortgages and differentials are expected However, from iAhorro they indicate that banks “attract customers with personalized offers because they are preparing for a possible slowdown in the mortgage market.”