The bad news continues for the mortgaged. This year will end the euriborthe main reference for mortgages variable rate, in the around 3%more than seven times higher than a year ago, after the increases in the price of money this year by the European Central Bank (ECB) with the aim of stopping the inflation.
After closing 2021 at -0.502% and returning to positive ground last April to positive ground after six years, this year will end at around 3%, at levels that they haven’t seen each other since 2008when the financial crisis broke out. Currently, the daily rate exceeds 3.2%, and the monthly average is close to 3%.
As a consequence of this evolution, the Government agreed with the bank measures to help vulnerable mortgaged families which is estimated to benefit around one million households. All this was approved last week in Congress. As the Vice President and Minister of Economy, Nadia Calviño, recalled, the treatment of vulnerable families, some 350,000, is improved, but a new temporary framework of action is also opened to more than 700,000 middle-class families “at risk of vulnerability”.
This evolution of the main reference for mortgages in turn caused an important change in the mortgage market, with the rise of the fixed-rate ones, which are two thirds of the new ones that are constituted and a third, variables, according to October data from the National Institute of Statistics (INE). In any case, the fixed, whose main increase occurred from July last year, have been losing weight after reaching 75.4% of the total in July this year. The average interest rate at the beginning is 2.03% for mortgages on variable-rate homes and 2.74% for fixed-rate ones, according to the INE. Banks, in fact, are boosting the offer of variable mortgages to make them more attractive and earn more margin.
At current levels, a mortgage of about 150,000 euros at 24 years with a Euribor and a differential of 1% would become more expensive about 265 euros per month and more than 3,300 euros per year, counting on the current average that caresses 3% plus the differential. The underlying problem is that currently the Euribor is close to 3% on average and in the daily rate it has already exceeded it and, a year ago it was negative: -0.502%. Hence these increases.
In general, experts point out that the euribor will continue to rise in 2023, although in a more moderate way. In any case, everything will depend on the policy that the ECB maintains regarding interest rates. If the war in Ukraine persists and the upward trend in inflation continues, the monetary authority of the euro zone will continue raising the price of money since its objective is to bring it to around 2%. on the other hand, if the conflict loosens up and prices moderate, the ECB could take its foot off the accelerator.
The forecasts are varied and range from a Euribor that could reach 3.5% if interest rates, currently at 2.5%, reach 3% to those who predict that it can reach 4%. The enormous and unprecedented rise in the Euribor has been making mortgage payments at variable rates more expensive all year (not fixed rate ones, which it does not affect).
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But the worst for the mortgaged is yet to come, in any case, according to analysts. Since last November, the revisions will be carried out with a type that will touch and exceed 3% (plus the differential signed when the credit was contracted), some very strong increases that will last for more or less a year. The largest increases will be concentrated in the first half of next year, according to industry sources.
Although there are variable rate home purchase loans that are reviewed every six months, most do so once a year. And in these reviews, the installments go up if the Euribor is higher than a year before in the month that serves as a reference to update the interest rate of the credit. The reason that the biggest increases began to take place in October and are going to skyrocket in the coming months is that the Euribor of two months before is normally used as a reference.