How does the ECB rate hike affect mortgages?

The consequences of the rate hike announced by the European Central Bank (ECB) are being felt in the economy, companies... and also in consumers, who will have to bear an increase in the mortgage payment due to the rise in the price of money. However, banks have been anticipating this new monetary policy scenario for months, with the Euribor on the rise, adjusting their mortgage offer to the market and promoting variable rates due to the potential profit margins for entities.

If the ECB reference interest rates rise, so does the Euribor, which is the index to which 80% of mortgages in Spain are referenced. And if this increases, the cost of variable rate loans for home purchase also does. In short, a blow to mortgage holders, who will have to pay more for their loans, although the reality is that they have been doing so for several months.

In the case of fixed-rate mortgages, those who already have it will pay what is established, but for those interested in acquiring a loan in this modality, the conditions will also change. According to the HelpMyCash comparator, fixed rates are expected to exceed 2.5% or 3% in the coming months and the 2% that some entities still maintain will disappear.

The market has been discounting a rate hike by the ECB since December, and this has caused the increase in the Euribor to come forward. It has gone from being -0.5% at the end of 2021 to almost 1% today. And the forecast of the analysts is that it ends around 1.5% this year to the compass of the decisions of the banking supervisor.

How much have mortgages become more expensive these months? Taking a 30-year variable mortgage with a spread of 0.99% as a reference, the IAhorro platform offers a simulation to check how the evolution of the Euribor will affect the mortgage payment.

For an average loan in Spain, which is around 150,000 euros, the difference between the installment that was paid in July 2021 (448.72 euros) and the one that would have to be paid this month (547.11 euros) would be 98 .39 euros, a figure that would translate into a total of 1180.68 euros to pay more annually.

In addition, depending on the evolution of the Euribor, the fees under these conditions could increase even more, taking into account that the main reference portals calculate that the index will be around 1.5% at the end of 2022. In that same case , the difference between the installment to be paid this July (547.11 euros) and the one that would remain at the end of the year (585.07 euros) would be 37.96 euros per month and a total of 455.52 euros more to be paid in the annual total. For its part, the increase in the quota between July 2021 and the end of 2022, if the forecasts that the index ends at 1.5% are fulfilled, would be 1,636.2 euros per year.

The greater the total amount of the mortgage, the greater the impact of the rise in the Euribor. Taking as an example a mortgage of 300,000 euros with the previous conditions of a variable rate at 30 years with a differential of 0.99%, the difference between the installments of July 2021 (897.44 euros) and the current month of July 2022 (1,094.22 euros) represent a monthly extra cost of 196.78 euros and a total of 2,361.36 extra euros to be paid throughout the year.

Better conditions for savers

The main beneficiaries after the measure will be savers, since logically, savings products such as deposits and accounts will increase their profitability. A movement to which some banking entities have already joined, offering higher returns for savings. According to the HelpMyCash comparator, entities that need liquidity or want to attract customers will be the first to raise interest on their deposits, ahead of the main banks.

In the current context, from HelpMyCash they point out that "it is not advisable to contract long-term deposits", since it is expected that the rates will continue to rise as the months go by and the profitability of these savings products will continue to increase.

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