mortgages are getting more expensive at the fastest pace since 2000

September 2000. The Euribor rose to 5.219%, when a year earlier it was 3.301%. This meant a percentage increase of 1,918 points. And until then we have to go back to see a rate of increase in mortgage prices stronger than the current one.

We are now in August 2022 and the story of an accelerated increase in the index to which 80% of housing loans in Spain are referenced repeats itself. The numbers are scary and they will be noticed in the mortgage payments. The eighth month of the year ends with an average 12-month Euribor of 1.249%.

This is the data that will be used to update the mortgage interest variables that touch review with reference to this month. The rise, thus, will be very important; so much so that it has not been seen since 2000. In August 2021 the index was still negative at -0.498%; now it has climbed above 1.2%, which represents an increase of 1,747 points.

The Euribor is the interest rate at which banks lend money to each other and is used as a reference to calculate the installments of variable mortgages, which are configured by a fixed differential plus the Euribor. What does it depend on to raise this index? Mainly, from the European Central Bank (ECB) directly and indirectly, since it is a market that is also moved by expectations. As Caixabank Research highlights, "the increase in the 12-month Euribor since the beginning of the year has been caused by a notable change in market expectations about how the ECB will act in the face of high and very persistent inflation rates in the euro area."

What the ECB has done in recent months has been giving wings to increases in reference interest rates, which reached negative in the case of the deposit facility. And he consummated that decision in July with the first rate increase in eleven years: he raised them by 50 basis points. But it won't stay there.

Twelve-month Euribor evolution

In percentage of interest rate

Source: Bank of Spain / ABC

Evolution of the Euribor

to twelve months

In percentage of interest rate

Source: Bank of Spain / ABC

In September, the institution chaired by Christine Lagarde is expected to undertake a new increase in its monetary policy meeting. How much is unknown, but it is discounted that it will be at least another 50 basis points. All to try to curb inflation, which set a new record in the euro area at 9.1%.

Faced with this scenario of new rate hikes, the Euribor already reacts in advance and has been very noticeable in the last two weeks of the month. There are more and more voices that speak of the ECB raising 75 basic points -like the United States Federal Reserve has been doing-, and that has already been translated into the daily index.

The average for August is configured with the data for every day of the month, but the trend goes much further. Until the third week of August, the daily Euribor moved around 1.2%, at which it closed on average. From there everything changed and his climb began. 1.344% on day 22; 1.427% on 24; 1.612% on the 29th, and 1.778% yesterday, August 31st. Five tenths more in a matter of two weeks, but that effect of having to use the average has prevented the current strong blow from becoming catastrophic.

When that stab in the pocket cannot be avoided, it will be in September since it will start on day 1 with an average of almost 1.8%, as it closed yesterday. The increase that month, if the entire period is confirmed at 1.8%, would mean charging mortgages an interest of almost 2.3 points higher compared to September 2021.

Quota Increase

Thus, from Helpmycash they have made calculations of how much the increase in August Euribor for a mortgage of 150,000 euros with a term of 25 years and interest of Euribor plus 1%, an example that resembles an average home loan. The conclusion: about 1,450 euros more per year when the interest review is every 12 months, which is the most common.

Beyond this, these increases also have consequences in new loan subscriptions. If the cost of mortgaging increases, the demand retracts. “The weakness of the euro and high inflation in Europe (8.9% in July) will cause the ECB to continue to escalate interest rates, although it will weigh on growth, given that private sector demand will contract with the peso that this has in the GDP, and will cause the slowdown of the mortgage and housing market due to the rise in the Euribor, ”they indicate from the General Council of Economists.

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