The euribor, los interest rates and the mortgage payment brings us head now that the BCE has decided to carry out a policy of raising interest rates to curb the inflation. Side B is that those with a variable mortgage are going to pay more. We have the Euribor rising day after day and today the ECB in its meeting in frankfurt going to raise interest rates again, surely a 0,75%. An aggressive rise that would leave the cost of money in a 2%. And if we continue like this, rates would reach in the middle of the first quarter of 2023 on the verge of 3%
The ECB’s policy affects us directly and makes us wonder why. Our main expert, the Economics professor at Deusto Business School, Massimo Cermelli, answers.
Why is the ECB raising interest rates?
Because he wants inflation to go down. A banco central You only have one tool and that is interest rates. You raise it so that the economy cools down and inflation does not continue to rise and you reduce it as in the last ten years when the economy is in recession or stagnation. When there is a crisis, the cost of money drops and when there is too much money circulating, what it does is raise the interest rate. That is why today we will see a new rise.
Why does that rise trigger the Euribor?
Shoot the Euribor because the rise in rates is like the minimum value at which money begins to be exchanged every financial entities and financial actors. This minimum input value is set by the BCE and from there the exchange begins and that is where the Euribor is generated, which depends in part on the ECB and in the second round by the exchange between financial entities. Of course, if the entry conditions go up, it automatically goes up a whole step.
Why are stock markets behaving so nervously?
Because there is a lot of uncertainty related to many events. On the one hand, the rise in inflation that does not seem to subside in some countries even with the implementation of the correct but ineffective tools. That’s the first item. The second, the geopolitical and geoeconomic instability that we have in the world. This summer we talked about the microprocessor crisis and now an oversupply due to the economic slowdown. It is uncertainty added to a scenario of high inflation that determines that the financial markets do not know where to go. And hence some unexpected values rise and most fall due to instability.
A fact from the portal stock market, that the rise in rates can make mortgages more expensive by 30%
It is so. On average, a 25-year loan of 150,000 euros could become more expensive by 200 euros per month. More or less are the estimates because the Euribor rises. Variables go up, not fixed rates. But fixed-rate mortgages are almost unaffordable because they have risen a lot and there are even entities that have withdrawn them from the market. It is time to see how to manage it with social measures.
What can we recommend to the mortgaged, tighten their belts?
What we will see is that little by little will cool down the real estate market in 2023. When rates go up a lot, the deterioration of labor conditions, and the high uncertainty makes it cool down and the contracting of mortgages decreases. For those who have them, those who have not, the best is to switch to the fixed rate although it may be a bit late and remind those who have a mortgage that financial institutions have to start pay off savings. It is time for that to happen.
There have been better times with the negative Euribor and now it may be time to pay in quotes the benefits of previous years for variable mortgages. There will be no major shocks apart from vulnerable households that will need specific help.