More expensive mortgages and loans, interest-bearing deposits and higher cost of debt for the next budget, the keys behind this ECB decision
A ‘deja vu’. This is what citizens will experience from this Thursday, when they have to get used to living with interest rates that are not only higher, but also higher. For the time being, this is 0.5% which has increased this interest rate of the European Central Bank (ECB). And what does this novelty mean? Pay more to finance. All. Both families and companies and also the State itself. Let’s see when, how much and why.
The first effect of the rate hike will be a more expensive mortgage payment than it has been so far. This increase was already noticeable in some of the home loans, which had to be renewed in recent weeks. These loans already take into account the rise in the Euribor, the step prior to the ECB’s decision. The mortgage indicator used to calculate most floating rate mortgages in Spain moved above 1% from -0.5% at the start of the year on Thursday. in positive. This evolution alone will ensure that the monthly payment of an average mortgage (145,000 euros over 24 years with a difference of one point on the Euribor) will go from about 530 euros to 630 euros in the next revision. A year means an extraordinary expenditure per family of 1,200 euros.
Those who took credit on purchases they made last Christmas paid a minimum interest in years for this type of operation: 5.6%. Due to the evolution of the previous crisis, financing became cheaper over the years. That the purchase of a new vehicle, home furnishings, appliances or travel, among many other purchases, was competitive. However, as the ECB’s decision drew nearer, the financing of these operations continued to increase. Six months after Christmas, with the summer in full swing, consumer credit already costs 6.6% in interest, practically a percentage point more than a few months ago.
Over the past decade, those who have saved money in their checking or term accounts have seen their banks pay them barely any money due to the profitability of these products. In fact, the commissions resulted in this profitability being technically negative in many cases. Even some large companies have had to pay entities for having money on their deposits. This situation may change from today. That is possible, because it does not seem clear that the return on deposits will grow as fast as, for example, the Euribor for mortgages.
The ECB’s decision also means that the state will have to allocate more money to finance the public debt it spends to maintain 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 2.5%. Just two months ago it was less than 1.5%. For this year, the State will spend more than 30,000 million euros in interest, an amount that will predictably increase by 2023 and with the interest rate rise.
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
