The index is at its highest level since the end of 2008 and makes variable home loans more than 200 euros more expensive per month
The Euribor threatens to burst part of household budgets after starting the year with a new increase that ended January at 3.33%. This is the highest figure since late 2008, when the great financial recession was underway. The rise represents a new mace in mortgage ratings taking this month’s data as a reference, since just a year ago it was negative -0.4%.
Specifically, the Euribor average rate stood at 3.4%, albeit with continued increases in recent days, which is expected to start February with high references as well. Especially if this Thursday the European Central Bank (ECB) meets in a meeting that is expected to raise interest rates again from 2.5% to about 3%, according to various analysis houses.
With the average of 3.333% recorded so far in January, a person who has taken out a 30-year variable mortgage of EUR 150,000 and with a difference of 0.99% plus Euribor will see an increase in their mortgage payment of approximately EUR 294. experienced. In absolute terms, you go from about 450 euros to about 744 euros per month, which amounts to an additional annual expenditure of more than 3,500 euros. Under the same conditions, a mortgage of EUR 300,000 capital pending repayment and 30 years pending payment should assume a monthly increase of EUR 588, which amounts to more than EUR 7,000 extra per year.
However, it should be borne in mind that not all mortgages increase in these proportions and that it depends to a large extent on the amount initially granted and, above all, on the year in which the mortgage was taken out. A loan granted in 2005 and now being revised will therefore increase on average by about 90 euros; one from 2012 will cost around 150 euros; and one signed two or three years ago costs between 200 and 300 euros.
Despite this data, organizations like Asufin believe the worst is not yet here. The organization maintains its forecast that the Euribor will rise to 4% for June. And he appeals to “the second-round raises that we will soon appreciate.” Their calculations estimate that the effect will be particularly noticeable in the summer, when the monthly increase was strong last year. “If we take into account that there was an annual increase of up to EUR 657 for every EUR 100,000 mortgage that month, the Euribor forecast we estimate for June 2023 of 4% will have an impact of EUR 2,015”, on average. As a result, “we see a total increase that will be 2,672 euros for these average mortgages, compared to the negative rates we had until the beginning of last year.”
Despite the increase from the last month of the year, the director of iAhorro Mortgages, Simone Colombelli, emphasized that stability in financial institutions and their products has returned in January. “We are gradually returning to normal banking dynamics, to changes in commercial offerings once a quarter and not every month or every week, as we have seen in 2022; That was utter madness,” said the iAhorro expert.
Despite this stability, people who have to review their mortgage payment in the coming weeks, using the January index as a reference, are experiencing the biggest increase in recent months. The difference of 3.81 points recorded in the Euribor in the first month of the year is the highest observed in recent months, above the difference of 3.52 points in December or 3.32 integers in November.
European credit application collapse
In this context, euro area household demand for residential mortgages registered the largest contraction in the entire historical series in the last quarter of 2022 in response to the rise in interest rates, the highest consumer pessimism and the deterioration in the outlook for the property market , as indicated by the European Central Bank (ECB).
The institution points out that the historical contraction in demand for mortgages responded to the rise in interest rates, the fall in consumer confidence and the evolution of the prospects for the real estate market. “They reflect the current environment of lower consumer confidence and economic slowdown, along with the rise in interest rates in response to high inflation,” he added, warning that for the second consecutive quarter, the outlook for the real estate market contributed negatively to demand , something not seen since 2013 and consistent with the slowdown recently observed in house price growth in the euro area.
Banks in the four largest euro economies reported a net decline in demand for home loans, which was particularly pronounced in Germany and France, where the net percentage of banks reporting a decline was 93% and 90%, respectively, compared to the average in the euro area of 74%, while in Spain and Italy the percentage of entities was 20% and 45% respectively.
Source: La Verdad
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
