Many months ago we warned here, in digital freedomof the problem that would the increase in mortgage payments for all those debtors with variable-rate mortgages, since many had forgotten about it, given the heterodox zero-rate monetary policy maintained by the central banks.
As we said, this rise in interest rates will mean a increase in the cost of financing economic agents. The public sector will see how its chapter III, interest on the debt, increases, although the extension of the average life of the portfolio will minimize the impact for a while and inflation will make your debt worth less. Companies will have more expensive financing. Families, for their part, will suffer this increase mainly in mortgage paymentsthe impact of which will depend on the amount, term and level of rate hikes.
This rise in rates has already begun and its effects are beginning to be feltalthough not yet in all its intensity because many mortgages have not yet been reviewed at high rates, which will happen especially between March and June of next year.
What’s more, these increases have not yet ended. Although we may be approaching the tipping point in the rate hike, the Fed and the ECB will continue with their restrictive monetary policy some time, since inflation does not subside. In this way, the Fed has raised rates again in December, maintaining its objective of reaching 5% in May 2023, when, remember, in March, rates were between 0% and 0.25%.
For its part, the ECB has also raised them in December, with the goal of reaching 3%-3.5% in the first semester of 2023. In July, they were at 0%, before the first rise. In that context, the one-year Euribor can reach 3.5%-4%. In March it was at -0.237% and in June, before the first ECB hike, it was at +0.852%.
And what causes that? More expensive financing and less disposable incomefor example, to consume, save or invest, in short, less disposable income to generate economic activity and employment.
Between 200 euros and 300 euros per month
This will make home financing more expensivewhose monthly mortgage payments will increase, on average, between 200 euros and 300 euros per month, which, in turn, will take resources away from consumption, with which sales will fall and production will decrease to avoid accumulation of stocks. Due to the foregoing and the increase in the cost of business financing, investment will have to recede. This effect will be noticed from the first quarter of 2023, when the corresponding mortgages are reviewed at that time, since the previous review was with the Euribor at a negative year. Now, the impact will be between 2 and 3 points.
As, additionally, inflation does not let up in the euro zone, the change in monetary policy towards an expansive one does not seem to be closeFar from it, especially looking at the evolution of underlying inflation, which is 6.6% in the euro area and 6.3% in Spain.
If structural reforms had been made and if monetary stimuli had been withdrawn earlier and more quickly -including those mobilized to combat the pandemic-, we would not now find ourselves with the serious problem that is on the table. The bottlenecks are due to market rigidities, both due to a problem of supply shortage in some of them as by the artificial demand stress in others, with exponentially increased public spending overheating the economy, in addition to fueling price increases due to a failed energy policy, which makes energy prices rise sharply and that it is transferred throughout the value chain.
If monetary policy had been more orthodox and an efficient energy policy had been adopted, prices would not have increased as much, since the bottlenecks would then have been transitory, because the markets would have been emptied and, therefore, prices would have adjusted between the different markets, since money was finite, in addition to the fact that energy would not have boosted as much prices up. However, if these bottlenecks are financed in an unlimited way, as has been done with the tremendously expansive monetary policy, and nothing is done in terms of energy, then they do not cease and inflation begins to become permanent.
As a result, monetary policy measures now have to be much more drastic in a few moments of maximum economic uncertainty and slowdown in recoveryin the midst of a war that contributes to increasing the tension in prices.
In this decrease in purchasing power due to the higher mortgage installment to be paid as a result of the potential rate hikes in the euro area, it will have an important part of responsibility the Government of the nationfor not having changed the energy policy towards an efficient one that bets on nuclear energy, and for having intensified the bottlenecks with its excessive public spending. There are the reasons and the consequences.