How Far Can The Euribor Go?
The European Central Bank is accelerating the pace of tightening its monetary policy in an attempt to contain inflation that seems to have no ceiling. Following the 50 basis point hike in July, the ECB is now expected to announce a 75 basis point hike in September. The 12-month Euribor is meeting these expectations and closed in August at 1.2%. However, it seems that the worst for those mortgaged at a variable rate is yet to come.
Asufin’s forecast in its latest projection is that the Euribor will stand at 2.2% at the end of the year , which means that the annual reviews to determine the cost of the installments will make family loans more expensive by 130 euros per month , and in more than 1,500 euros per year.
Markets are already pricing in hikes of almost 170 basis points in the ECB’s deposit rate through the end of the year. This would leave said rate at 1.75%. The Euribor could begin to discount rate hikes in 2023 and reach higher levels. In the end, this indicator represents the ‘price’ (interest rate) at which banks lend money to each other in the interbank market. This price is largely controlled by the rate decisions of the ECB, which is the conductor of the money markets in the euro zone.
If this trend continues, the association believes it is “possible” that in 2023 a 12-month Euribor of 3% will be reached, which would mean an increase in the cost of mortgages above 2,000 euros per year , taking as a reference a loan type of 100,000 euros at 25 years.
The monthly Euribor for August, known yesterday, of 1.25% means “overcoming the psychological barrier of 1%” and that the loan to be reviewed in that month becomes more expensive by about 1,000 euros (specifically, 978 euros) as a result of the increase in the monthly fee by 81 euros. The association recalls that when the index crossed the psychological barrier of the positive digit, in April, with 0.01%, the increase in the share was just 23 euros, with an annual difference of 272 euros.
caution in banking
These changes are already being transferred to the field of fixed mortgages, with an offer “disappearing in many cases”, since banks are very cautious when granting the change from variable to fixed mortgage, as Asufin maintains.
The association also calls for “paying close attention” to the combined sale of non-loan products, with the aim of adjusting the price downwards. “The final price of the contracted mortgage, in terms of APR, with these products”, such as insurance or pension plans, “is usually higher than if we dispense with the discount applied to the interest rate and go to the market in search of of better options,” he concludes.