The current context of general price increases is also shifting to mortgages in Spain. The main indication for the interest rate on housing loans, the 12-month Euribor, already shows the results of record inflation, which threatens the purchasing power (purchasing power) of households. The index averaged -0.237% in March, down from -0.5% in December, the lowest level ever.
To understand the impact is an example. The model mortgage upgrade in April (150,000 euros over 25 years at 1% plus Euribor value) at a variable interest rate will increase by almost 190 euros per year. 16 euros more per month.
Analysts’ expectations indicate that Euribor, the benchmark for financial institutions across the euro area, will continue to be positive and will therefore add to the spreads that make up the mortgage price (TIN or nominal interest rate) in the coming months, years. Negatively, are these loans for buying homes at a floating interest rate that is being considered or, conversely, at a fixed rate that has yet to be settled or converted. The last daily data of the index was -0.1%.
“If we look at the evolution of mortgage terms over the last two years and with proper caution, interest rates on new mortgages can increase by about 0.2 percentage points per year without formal growth. [del Banco Central Europeo, que los mantiene en el 0%] And 0.5 to 0.7 points per quarter [0,25%] “Official rates are rising, but they are not yet visible,” said Santiago Carbo and Francisco Rodriguez, economists at the University of Granada and the Funcas think tank in a recent analysis.
The truth is that the rise in official interest rates of the European Central Bank, which has a direct impact on Euribor, is taking place in the debt markets and is already being seen in the United States by the Federal Reserve (Fed) or the United States. By the Royal Bank of England in response to peak inflation.
Along the same line, the Banker Analysis Department expects Euribor to be around 0.40% in December 2022 and about 0.80% in 2023. CaixaBank Research, for its part, predicts that this index will grow to 0.13% this year and. It will be more than 0.85% for the next one.
This price increase has many causes and consequences (some of which are troubling) for households, such as “moving quickly to hire or renegotiating variable rates. [se revisan periódicamente según el Euribor a 12 meses en la mayoría de los casos] At fixed rates [una mensualidad estable]”, As they explain. It should be noted that as of January this year and according to the National Institute of Statistics (INE), the average interest rate on a mortgage loan was 2.54%.
Due to the turmoil in the international markets caused by the war in Ukraine, the increase in the price of energy – electricity, gas or fuel – has already covered the rest of the goods and services. The CPI (Consumer Price Index) rose 9.8% in March from the same month in 2021, a record high since 1985, while energy grew by 73%, according to the government.
The headline inflation estimate, which precisely excludes energy and food (considered to be the most volatile elements of the shopping cart), reached 3.4%, forcing the government to launch a shock plan with emergency and temporary measures such as fuel discounts. Gas or even lease limit, lowering prices and avoiding suffocation of workers and companies.
Mortgages, even though they belong to a specific market, have not avoided a general blow to prices – the CPI has been rising by more than 5% every month since October, exacerbated by the invasion of Ukraine and the explosion of demand. A pandemic that has global supply still having problems after restraint due to difficulties in reactivation and restrictions on the control of contagious explosions.
And, in the long run, the tendency for loan prices to buy homes is projected to rise, even if government measures or the end of the war will reduce energy costs. Against this background, the European Central Bank monetary policy normalization (stimulus withdrawal), which kept official interest rates at historically low levels – in response to the Covid crisis, among other instruments, revealed the terms of the unbeaten financing. In recent years (see chart).
This era of minimum rates, which has popularized fixed rate mortgages, is more expensive than variable rates but at historically low rates, or which has opened up the possibility of financing very cheaply with the latter, is the last stretch.
“The outlook is not promising for those with a mortgage whose interest will be revised in the coming months. This index is trending. [el Euribor] Clearly rising: After closing in December 2021 by -0.502%, it increased in January (-0.477%), February (-0.335%) and March (-0.223%). The forecast, according to more and more experts, is that it will continue to grow this year, until it reaches positive values, which has not happened since 2016, “- emphasize the financial comparator HelpMyCash.com experts.
“Average interest rates on mortgages are gradually rising, driven by global market trends, and will increase even more if the European Central Bank is forced to pull the stimulus faster,” Santiago Carbo and Francisco Rodriguez agreed in an article in Funcas.
“It’s difficult to determine the connection between the evolution of monetary policy and the evolution of the Spanish mortgage market. On the one hand, the decisions of the European Central Bank are now subject to additional uncertainty due to the war. Ukraine and its impact, among other aspects, on inflation. “On the other hand, it is not easy to make a direct connection between the expectations of the evolution of official interest rates and mortgage rates,” the economists explained in an article by Funcas.
“What is observed are interbank rates [el Euribor] “They are growing significantly in the eurozone, however, at the moment there is no announcement or forecast from the ECB about interest rate hikes,” they added.
It is an important fact that “70% of new mortgages are fixed at a fixed rate, which limits the variability of interest rates,” they said.
“Also, pure anecdotal evidence from a mortgage market study suggests a certain prevalence of aggressive offers in terms of mortgages that have been reasonable in recent years (for example, over 80% of funded appraisal rates and 90%). “This aggressive entry is noticeable, especially in the case of neo-banks, although their market share is still very limited,” concluded Santiago Carbo and Francisco Rodriguez.
The European Central Bank is in a dilemma to respond to the inflation peak by withdrawing money from the debt market and raising official interest rates so as not to drown the most indebted states, companies and households in tightening financing conditions.
“In this crisis, we find ourselves in a very specific situation, where inflation is mainly caused by supply shocks and slowing economic growth,” explains Scope Ratings. “In other words, the rise in interest rates by the ECB in the current situation can not directly address the inflationary effects associated with rising energy prices. Therefore, we expect the institution to act flexibly, in accordance with its recent transfers, ”the debt rating agency added.
Source: El Diario
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