The ECB has accelerated the pace of rate hikes, which had an immediate impact on the Euribor, which could close the year at around 2.5%. How does this affect families?
This is the largest increase in its history. The European Central Bank (ECB) has raised interest rates by three quarters of a point, up to 1.25%. This is also the second time this year. The July rise, the first in eleven yearsit was half a basis point and will not be the last as more upward moves are expected in 2022.
75% of mortgages in Spain are variable rate and the rest are fixed rate
Furthermore, the two presidents of the European Central Bank (ECB) and the American Federal Reserve (Fed) – Christine Lagarde and Jerome Powell – clearly indicated that further increases, even of a further 75 basis points, will be necessary to bring the price increases back to the 2% target set by the two institutions.
Curbing runaway inflation
Indeed, by raising interest rates, the ECB tries to do so curb inflation, at all costs… Even if the economy has to suffer. It must be said that in August the CPI closed at 9.1% in the euro zone, but in Spain it was higher: 10.4%. However, the weakness of the euro and high energy import costs also argue in favor of higher short-term interest rates.
Implications for loans
According to the Spanish Mortgage Credit Association (AHE), 75% of mortgages in Spain (currently being repaid) are a variable rate, while the rest is at a fixed rate. Therefore, the rate hike will affect three out of four loans. However, those with adjustable rate mortgages prior to 2010 have paid off much of their debt and the rate hike will have less impact.
On January 5, just over 9 months ago, the Euribor marked its lowest annual level, falling to -0.5%
The problem arises for those who soon have the annual or six-monthly review of the variable rate of the mortgage taken out in the last seven years, when the Euribor was negative. The OCU believes just as if the Euribor closed September at 1.9%, this would mean an increase of 2.392 points compared to the same rate in September 2021, when it was negative (-0.492%). This increase would result in an increase of 84 euros per month for an amount of a mortgage loan of 100,000 euros; in other words, you should pay approximately 1,000 euros more per year.
How rising interest rates affect interest-bearing accounts
Gone are the days when Spanish banks were at war with each other by paying off deposits at unbeatable rates !! Thereby, in 1989 Banco Santander launched its “supercuenta”, with a rate of 11%. In order not to lose their customers, the other banks exceed the offer and this frenzied race will then last several years, until a gradual decline begins. It was in 2012 that the average deposit rate dropped below the 2% threshold for the first time. Today, the Spanish bank can even boast of being the least valued of private deposits in the euro zone.
With the latest Euribor increase, around € 1,000 more per year would have to be paid for a loan of € 100,000
We have already seen it in France, where the favorite refuge product of the French, booklet A is raised to 2% this summer. Currently, in the Spanish marketthe impact of the increase is much slower. For the most common duration of 12 months, three banks already offer an APR of between 1.25% and 1.60%, a real record! Just two months ago, no one even offered 1%.
Upcoming interest rate hikes expected
The dates of the next ECB meetings where further interest rate hikes could be announced are: 27 October 2022, 15 December 2022, 2 February 2023 and 16 March 2023. Experts expect the ECB to proceed with two further rate hikes first. of the end of the year. They generally agree that the next one, in October, will be 50 basis points. On the other hand, they are divided on whether it will repeat the same increase in December or reduce it to a quarter of a point. In any case they believe it the increases will be extended until early 2023.
The most pessimistic forecasts spoke of a Euribor at 0.4% in 2022
As a reminder, Last Aprilthe most pessimistic forecasts of the research services of the main Spanish banks place the 12-month Euribor this year at around 0.4%. For 2023both Bankinter’s research department and Caixabank have seen the indicator around 0.8%, while Funcas (that of the savings banks) estimates that the Euribor will fluctuate around 0.2% next year. However, it just hit 2%!
More precisely, theThe 12-month Euribor rose 112 points on Friday, falling from 1.903% to 2.015%, leaving the monthly average at 1.910%, although it is expected to rise over 2% at the end of September. On January 5, just over 9 months ago, the Euribor marked its lowest annual level falling to -0.5% and it was April 12 that it found itself in positive values for the first time since 2016. To find a Euribor rate higher than 2% you have to go back to December 2011.