2023-07-30 06:22:55
He European Central Bank (ECB) decided this week to carry out the ninth interest rate hike in the past year. The reference rates have remained in the 4,25% and the ease of deposit in the 3,75% after raising them by 25 basis points. The explanation given by the institution is that inflation continues to be high, especially the subjacent one —that which calculates the evolution of prices without taking into account the prices of energy or that of unprocessed food—, which is increasingly close to the point and end of the intense process of increasing the price of money that began a year ago.
The ECB does not advance the future of its next decisions, but it does advance that in September there may be both a new rise in rates and a pause in them. Everything will depend on the economic data. However, what is certain is that mortgages will rise above 200 euros per month after this increase in interest rates and that citizens will be the most affected.
How does it work?
“The intervention rate of the European Central Bank is the reference rate from which the rest of the interest rates are generated. It is like a normal bank but it lends money to other credit institutions within the European Union and to the states as well”, he explains. Guillermo Marrero de la Nuezvice dean of Official Association of Economists of Las Palmas. “In turn, credit institutions lend money to each other in response to their treasury needs,” he continues. This means that some may have excess liabilities —which are accounted for in the bank, unlike companies and liabilities are deposits— “and they put it into circulation within the interbank market for those entities that have excess assets, that is, , who have more loans granted than credit deposits”.
Since the entities that lend to each other take as a reference the EuriborIf the ECB raises interest rates, it immediately raises the previous one. “Right now, when this new rise of 4.25% has not been registered, the Euribor is at 4.14%. Soon the new 12-month data will be released and this will be above the 4,25%”, De la Nuez continues to explain.
Mortgages
“The Euribor is the most used as a reference in the mortgage loans”. This will mean a new rise in the interest rate with which mortgages are contracted, the variable interest rate. “To this is added the differential, which is usually 0.5 to 2% of previously signed mortgages, where the differentials are higher.” Therefore, there will be a mortgage payment growth which canary households face. And not only in such a direct way, but it will also produce a growth in financing in general —consumer loans, interest from credit institutions…—. “In short, it will be more difficult or, at least, more expensive, to access external financing and families that have a mortgage will see it, once again, increased.”
Through the survey on living conditions carried out by the Statistics National Institute (INE), in 2022 in the Canary Islands there were 176,000 households that had a mortgage, the average payment was 445 euros and the interest rate was negative. “Assuming a mortgage that has outstanding capital of about 100,000 euros and a differential of 0.5 points, pulling low,” exemplifies the economist, “There is a growth of 200 euros per month in the mortgage”. A “hecatomb and a twist that makes Canarian and Spanish households tighten their belts even more.”
forecasts
In 2022, 45% of households that had a mortgage“and in 2023 things will be worse”, had had one or more late payments on your mortgage. “This is an unequivocal sign that it is being hurting the economy”. However, the European Central Bank leaves the door open to stop this rise and, depending on how inflation unfolds, they will have to raise it or start lowering it because the institution’s mission is to keep inflation controlled at an annual rate of 2%. .
“He Consumer price index (CPI) for the last month, although it registered a rise, it was beginning to show a moderation of these growth rates. It is foreseeable that, in the coming months, with the accounting of the effects of the reductions and that most of the companies have already incorporated the increases that have occurred previously into their price calendar, in 2024 —if no other relevant event occurs that generates uncertainty in the economy— let’s begin to see reductions in the rate of ECB intervention and therefore of the price of money and the Euribor”, concludes de la Nuez.
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