The OCU proposes three scenarios depending on how interest rates evolve in the coming years
The escalation of the Euribor in the last year has made the choice between a fixed-rate or a variable-rate mortgage loan a little more complicated. The indicator, which is used to calculate the interest at which mortgage money is paid, has gone from -0.484% (in June 2021) to 0.852% (June 2022) in just 12 months.
While the Euribor was negative, users were inclined towards mortgage loans with a fixed interest rate. Last year, according to the National Institute of Statistics (INE), almost 263,000 mortgages were signed in Spain under this modality.
Now, with the change of course in interest rates, many financial institutions are beginning to bet on variable mortgages, with which they hope to obtain more income. Hence the growing supply by banks, which are making them cheaper while making fixed ones more expensive.
The key
And what is the most convenient today for the consumer? Is it no longer worth taking out a variable mortgage? The key, according to the Organization of Consumers and Users (OCU) is in the rates set by the European Central Bank (ECB). His decision will depend, in turn, on the evolution of inflation – fully triggered and with no clear signs of containment – and of the European economies.
In this context, the consumer association proposes three possible scenarios, in which it compares some of the best products with little connection in contracting -such as Pibank’s variable mortgage, with a rate of 0.98% the first year, which can be revised to Euribor+ 0.78%- with the Open Bank fixed mortgage -offers a rate of 2.02%, payroll direct debit and home insurance- for a term of 15 years and a capital of 100,000 euros.
three scenarios
– Scenario 1:
In this first case, the Euribor rises to 1.5% in 2023 to reach 2% in 2024. From then on, and for the rest of the life of the loan, the indicator remains stable at around 2%. In this scenario, the fixed loan “is clearly the most favorable”, with a saving of 4,232 euros compared to the variable one.
– Scenario 2:
It foresees rapid rises in the Euribor to contain inflation. It would reach 2.5% already in 2023, while between 2024 and 2028 a second phase of progressive cuts (of 0.5 annual points) would be entered with the aim of avoiding a possible recession of the European economies. In such a way that in the years 2027 and 2028 it would reach a minimum of 0.5%.
Later, a stable scenario of four years would arrive with the indicator around 1%, and then a progressive rise until it settled around 2%. In this scenario “there is hardly any difference between the fixed and the variable loan.”
– Scenario 3:
It assumes a rapid initial increase to 2.5% next year. Subsequently, a scenario of recession and more intense rate cuts is proposed from 2024 to reach a minimum of 0.5% between 2026 and 2028. Afterwards, a normalization phase would be reached with a progressive increase that would reach 2%. In this case “the variable loan would be the most favorable option, since 1,296 euros less would be paid.”
In summary, the OCU understands that in such a long-term operation as a mortgage -with maturities of 20 or more years- “it is better to be prudent and not rush”. In his opinion, there is no need to make short-term decisions “based on an extraordinary and probably temporary situation such as the invasion of Ukraine and the lack of control of inflation” that it is causing.
The precedent of the 2008 crisis
The organization recalls that between 2007 and 2008 there was a continuous rise in the Euribor. In this scenario, some financial institutions “took the opportunity to place their clients with multi-currency mortgages, especially in Japanese yen, due to their low interest rates.”
But immediately afterwards, the banking index plummeted to negative rates while the euro devalued against other currencies, “producing large losses to those mortgaged in other currencies.”
In any case, the OCU “always” has advised consumers with variable mortgages to have a margin of savings or income “enough to face the fee increases that always occur throughout the life of the loan” .