This is how four million mortgages will rise from August due to the ECB's decision

This is how four million mortgages will rise from August due to the ECB’s decision

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The European Central Bank has raised interest rates to 0.50% this Thursday, twice as expected by the market, in order to try to contain the galloping inflation data. People mortgaged at a variable rate who have renewed their installment in recent weeks already know: the family budget is getting tighter. This will intensify from August, when the Euribor figure for July is consolidated. The main association of consumers of financial products, Asufin, assumes that the peak could exceed an extra expense of more than 1,000 euros per year, based on an average mortgage.

The Euribor has been discounting a scenario of rising interest rates in the Euro Zone since spring and has experienced a large rise in June: 0.85 points, from 0.29 points. It is the largest monthly increase in historysince the index was created in 1999. “We have been rising for more than a month, the 12-month Euribor is already positive, the market has already discounted the first rate hikes,” explains Santos González, spokesperson for the Association Hipotecaria Española, an organization made up of banks and other financial entities.

The spokesman for the financial institutions considers that most of the increase has already been discounted, so that in the short term, the situation will not worsen: “The most reasonable hypothesis is that we could be around a Euribor of around 1% at the end of the year”. The Spanish Mortgage Association, which already anticipated this figure before the unexpected announcement by the European Central Bank this Thursday, maintains its bet at 1%, based on the uncertainty that exists beyond September: “I would not like to be speculating with higher increases It’s still a bit conservative, we still have to rectify it, but the economy is erratic.”

The Association of Financial Users, Asufin does take for granted that the Euribor will reach the 1.5% in December, something that was already being warned about even before the announcement of the rate hike this Thursday. This association has made a calculation on this scenario. Starting from a mortgage of €100,000, for 25 years, and understanding that you paid a fee of €355 in December 2021, this could go to €449 in December 2022, if the Euribor reaches that 1.5%. That would mean an increase in annual spending of 1,127 euros more. Asufin estimates that in December 2023, the Euribor could reach 1.9%, which would mean a fee of €469, that is, €114 more each month, €1,372 per year.

There is no official data on how many mortgages are alive at this time. The Spanish Mortgage Association calculates in its latest annual report that in Spain there are around 5.5 million mortgages, 75% at a variable rate, so this increase would affect around 4 million households. The variable rate mortgage was almost a financial tradition in Spain. Once the Euribor, at the beginning of 2016, crossed the threshold of zero to fall into negative, the new mortgage holders began to prefer fixed interest rates. It was not an automatic change. In January 2009, variable rate mortgages were the indisputable option, chosen by 96% of mortgage holders. In January 2016, the figure already fell to 89%. A year later, at 63%. The latest known data, from April 2022, is 22%. Most users have understood that it was a good time to take advantage of low interest rates and perpetuate the interest on their loans within a fixed formula, to avoid the headwinds that, indeed, are already coming.

Difficulties are coming for families, but for now without systemic risk

“This is going to affect a percentage of the population. There are several million people with variable mortgages in Spain, and in that large group there is sure to be a percentage of the population that will be affected, but it will not be a problem,” warns Santos González. “In any case this will not pose any risk to stability of the mortgage market or the solvency of the financial system. Entities are highly prepared in terms of solvency, as well as provisions, so that any minimal impact of non-performing loans is perfectly acceptable”.

The spokeswoman for financial users Asufin, Verónica Rodríguez, sends out a message of caution: “This It will undoubtedly impact the average family. If another type of loan or a more or less delicate situation is added… like a family that already has a fair budget… well, yes, it will have an impact”. However, he agrees with the business association that there is no risk of delinquency that existed in the financial crisis: “Delinquency is more controlled than in the previous crisis. If we find ourselves with a scenario in which everything deteriorates a lot, then the default will probably increase.

In this sense, Asufin has sent a message to those people who negotiated the mortgage in the middle of the financial bubble, with a spread of between 2% and 3%, so that renegotiate the conditions with their banking entities. “The mortgages of these banking users have already amortized a good part of the capital that was subscribed in the years 2010 to 2014 and they can find better options at the moment: a fixed rate and even variables in the environment of 1% or less”, he expresses. the association, in a statement released after the announcement this Thursday of the rise in interest rates.

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