2023-12-12 07:07:41
The Euribor has been divorced from the interest rates of the European Central Bank (ECB). The benchmark index for most mortgages has fallen half a point, to 3.75%, from the maximum of 4.21% reached on October 5 in its daily price. At the end of that month, the monetary institution chaired by Christine Lagarde left the ‘price’ of official money at 4.5%. This Thursday, her governing council once again decides whether to modify it. He is expected to maintain it at that same level.
The ECB will lower interest rates in spring if the moderation of inflation is confirmed
The fall in the Euribor responds to expectations of a drop in interest rates from the ECB in March or April, after the most aggressive cycle of increases in its history to fight inflation. The institution began to increase the ‘price’ of money in July 2022, from the historical low of 0%, and took it to 4.5% in September (the governing council decides on monetary policy every six weeks). In October, the ECB took a first break, which is expected to extend this Thursday.
The expectation of an upcoming rate cut causes more competition among banks and that is why it is transferred to the Euribor – the mortgage index is the result of a weighted average of the interest rates at which 19 banks in the eurozone lend. money between them, which, in turn, depends on the official ‘price’ of money.
On the other hand, the advancement of the expectation of a first rate cut to March or April is justified by two facts. First, in the fall in inflation faster than estimated by the institution itself. Second, in the imminent risk of a self-induced recession.
Last week, Isabel Schnabel, the leading defender of German orthodoxy on the ECB’s executive committee, cited economist John Maynard Keynes (who argued for state intervention to reverse imbalances and crises, against believers in self-regulation). of the market) when asked about the moderation of price increases. “When the facts change, I change my mind”said.
“The inflation data for November was a very pleasant surprise. The most important thing is that underlying inflation [que excluye de su cálculo la energía], which has proven to be more persistent, is now also falling faster than we expected. This is quite remarkable. In short, the evolution of inflation has been encouraging,” she assured.
It could be understood as a preliminary concession from the hard core of the institution’s governing council, which together with the executive committee (made up of the president, vice president Luis de Guindos, the chief economist, the German woman and a handful of other members), completed by the governors of the central banks of each euro country. But, for now, it is just that, a first concession. The strategy of making financing more expensive to suffocate the economy, and thus combat inflation, will continue in force.
Also through the Euribor. The index is declining in its daily price. But the average monthly figure for December (now 3.77%) – the reference with respect to which variable mortgages are updated or with respect to which banks sell new ones, whether fixed, mixed or variable – will be higher than a year ago (3.18%), barring a collapse, and will once again make mortgages that are reviewed in January, and those that are signed or changed, more expensive.
“The unexpected drop in inflation to 2.4% in November [en promedio en la eurozona] and statements by ECB Governing Council members that further rate hikes are unlikely have fueled rate cut fantasies in recent days,” says Ulrike Kastens, European economist at DWS.
“But does the ECB really want to open the door to a less restrictive monetary policy? We think not. “Rather, ECB President Christine Lagarde is likely to make clear, especially at this week’s meeting press conference, that rate cuts are not yet on the agenda,” she continues.
“We believe that Christine Lagarde will be able to use the new forecasts [que el BCE publicará el mismo jueves] to point out that, although increases are no longer on the table – even hawks like Isabel Schnabel have given up on that option – it will be necessary to wait until 2025 for inflation to return to the target, a perspective that does not justify early cuts ”, comments AXA IM chief economist Gilles Möec.
“The markets [inversores y analistas] They are confident that inflation will come down quickly and are therefore pricing in early and very significant rate cuts next year. Central banks are more cautious and I would say they have to be more cautious,” said German Isabel Schnabel. “After more than two years of inflation above target, we must err on the side of caution,” she concluded.
Special damage in Spain
In its latest economic forecasts for Spain, the OECD highlighted what is already known: “Households are very exposed to the increase in interest rates, since 70% of mortgages are variable.” That is, 70% are updated every year (or every 6 months) according to the Euribor plus a differential.
For example, this December, the installments of an average mortgage, of 150,000 euros for 25 years and with an interest of Euribor plus 1%, will go from about 777 euros to about 879 euros (about 1,223 euros more per year), assuming it was reviewed annually. It must be taken into account that this would be the second increase in prices, since in December 2022 it would have been updated according to a Euribor of 2.828%, from -0.487% in November 2021, close to its historical minimum.
A couple of weeks ago, the governor of the Bank of Spain, Pablo Hernández de Cos, indicated that “it is expected that in the future the transmission of the increase in interest rates to the cost of household debt will be more pronounced. In fact, around 30% of variable mortgages will see their interest rates rise by more than one percentage point in the twelve months to June 2023.” This percentage reaches 1.5 million families, of the 5 million total mortgages on habitual homes (according to figures from the Spanish Mortgage Association).
Recently, the Bank of Spain stated that some 750,000 homes with mortgages are already suffocated. That is, they dedicate more than 30% of their monthly income to the loan payment. This is the theoretical limit above which “a high net financial burden” is considered.
In a turbulent time for economic news, it is more important than ever to be well informed. The repercussions of each business movement, of the economic policy of governments and their impact on citizens, explained from a rigorous and different point of view.
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