How to deal with the first rate hike of the last decade

Bank of Spain. / CR

Mortgages and more expensive credits, remunerated deposits and a higher cost of debt for the next Budget, keys that this ECB decision hides

Jose Maria Waiter

A 'deja vu'. This is what citizens are going to experience as of this Thursday, when they have to get used to living with interest rates that are not only higher but increasingly higher. For now, 0.5% is what this European Central Bank (ECB) rate has increased. And what does this novelty entail? Pay more to finance. All. Both families and companies and also the State itself. Let's see when, how much and why.

100 euros more per month in the mortgage

The first consequence of the rate hike will be a more expensive mortgage payment than until now. In fact, this rise has already been palpable in part of the housing loans, which have had to be renewed in recent weeks. These credits have already incorporated the rise in the Euribor, which was the step prior to the ECB's decision. The mortgage indicator with which most of the variable-rate mortgages in Spain are calculated has gone from being -0.5% at the beginning of the year to being above 1% this Thursday. in positive. This mere evolution will cause the monthly payment of an average mortgage (145,000 euros at 24 years with a differential of one point on the Euribor) to go from about 530 euros to 630 euros in the next revision. A year will mean an extraordinary expense per family of 1,200 euros. In the case of those who are mortgaged with a fixed rate, they get rid of any change: they will continue to pay the same fee that they had contracted. The advantage of this modality is that it cushions the times of rate rises, although it does not benefit from years in which interest rates are low, as has happened in the last decade.

More expensive financed purchases

Those who pulled credit on purchases they made last Christmas, paid a minimum interest in years for this type of operation: 5.6%. The evolution of the previous crisis caused financing to be cheaper as the years went by. That the purchase of a new vehicle, home furnishings, appliances or trips, among many other purchases, was competitive. However, as the decision of the ECB has been getting closer, financing these operations has been higher and higher. Six months after that Christmas, with the summer in full swing, a consumer loan already costs 6.6% in interest, practically one percentage point more than a few months ago.

Deposits... Remunerated?

During the last decade, those who have saved money in their checking or term accounts have seen how their banks have hardly paid them money due to the profitability of these products. In fact, the commissions have meant that in many cases this profitability has been technically negative. Even some large companies have had to pay entities for having money in their deposits. This situation may change from today. It may, because it does not seem clear that the return on deposits will grow as fast as, for example, the Euribor has done for mortgages.

Most expensive public debt

The ECB's decision also implies that the State will have to allocate more money to finance the public debt it issues to sustain the Spanish economy. In recent auctions, the Treasury has already had to pay more interest on debt issues, under pressure from investors. The cost of the 10-year Spanish bond is already at 2.5%. Just two months ago, it was below 1.5%. For this year, the State will spend more than 30,000 million euros in interest, a figure that, predictably and with the rise in rates, will increase in the face of 2023.

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