The rise of the Euribor stops the mortgage firm dead

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The indicator rejects November at 2.83% and fixed rate loans fall below 70% for the first time since December 2021

The unbridled escalation of the Euribor does not seem to reach the ceiling. The indicator will end at 2.83% in November, a level not seen since the end of 2008, which is already being transferred to the mortgage market, both in the newly signed loans and in many of those that now have the annual review, which will be significantly more expensive.

It is true that the growth rate of the mortgage firm has been moderating for a few months now. However, the latest references already point to a sudden stop in the sector. Compared to the year-on-year increase of 10.5% recorded in August, residential mortgage growth was limited to 4% in September, to 44,119 units.

It is true that the sector has recorded consecutive increases for 19 months. But the figures used now are a far cry from the nearly 25% increases recorded in May, for example, just before the European Central Bank (ECB) began to withdraw its fiscal policy.

This rate hike process has meant that many families with recently taken out floating rate mortgages (most of the interest is paid at the beginning of the loan) are now facing notable increases in the cost of revising their installments.

It should be borne in mind that everything depends on the amount still to be repaid, the remaining repayment term, the interest rate and the date the contract was signed. But if we take as an example an average loan of 150,000 euros for 25 years and an interest rate of Euribor plus 1%, the monthly payments increase by about 245 euros per month (almost 3,000 euros more per year) if the revision is annual. If the applied rate is updated every six months, this increase will amount to EUR 193 per month (approximately EUR 1,156 more per semester), according to calculations by the financial comparator Helpmycash.

“Looking ahead, the ECB is expected to raise its rates again at its next meeting on December 15: at least to 2.50%. Given that the Euribor has historically traded between 0.5 and 1 percentage point above the interest rate of the European Central Bank, we consider it very likely that this index will end the year at around 3% or above.

In this scenario where the Euribor rises practically every day, banks have undergone a radical turn in their commercial strategy to try to redirect their customers to floating rate loans, to the detriment of fixed loans, which are now less profitable for the industry.

INE’s data shows that this strategy is already delivering its first results. In concrete terms, 68.2% of new mortgages taken out in September had a fixed interest rate. It remains a very high figure. But as of December 2021, the percentage had never fallen below 70%.

In total, the average interest rate applied by the entities in September was 2.47%, 0.24 points higher than the average Euribor for that month, which was 2.23%. At a fixed rate, the average was 2.70%, compared to 1.96% for the variables.

To avoid the impact of this uptick, the government and banks have signed a new protection protocol that the entities will adhere to in the coming weeks.

These measures include the option to extend the repayment term, apply a grace period of one, two or five years and reduce interest rates during that time. “For the mortgagee, this means you have to pay more interest in the long run, but you can significantly reduce the amount of your monthly installments,” say the experts.

To benefit from the agreement, yes, certain requirements must be met, such as earning an income of less than €29,400 per year (€25,200 to access the deeper solutions), spending more than 50% of salary on paying the mortgage repayments and have had to deal with a sharp increase in mortgage costs.

If the requirements are not met, the customer can also contact their bank to try to agree on solutions similar to those in the agreement. “Of course it is important to be proactive and act in advance: since the entities are going bankrupt due to the large number of mortgage borrowers who want to restructure their debt, it is advisable to make an appointment with the new value a few weeks before the interest rate is assessed of the Euribor”, alert from Helpmycash.

Source: La Verdad

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