We already announced it last September: variable mortgages would skyrocket if the Euribor continued to rise. And, for now, there is no brake in sight. The benchmark for the vast majority of variable rate mortgages in Spain, the 12 month Euriboris still skyrocketing and has surpassed the daily rate of the 3,5%. It would be necessary to go back to December 11, 2008, in the midst of the economic crisis, to find similar numbers.
This record number comes right after the European Central Bank (ECB), through some of its members, declared the need to vary this value to face the economic recession and the enormous inflation that plagues the whole continent. Thus, at the meeting held on February 2, they decided raise interest rates up to 3%then a clear message is sent to stop the price escalation and achieve keep inflation at 2%.
In the last two sessions it even positioned itself above the barrier, increasing by 41 thousandths It is reaching 3.518% this February 14th. It's curious but the tentative average for February is 3.442% compared to the 3.33% with which it closed the month of January. Just a year ago, when the pandemic crisis broke out, the Euribor was still positioned at negative values, around -0.33%.
How does this directly affect users?
With these new Euribor values in hand, dealing with the installments of a variable rate mortgage becomes a really complex challenge. And is that if we ask for a loan of 180,000 euros for 25 years, with 1% differential on Euriborthe fee will increase from 651 euros to 994 euros, which translates into an increase of 343 euros per month and 4,116 euros per year.
predictions
The Governor of the Bank of Latvia and member of the Governing Council, Martin Kazaksas well as the vice president of the monetary authority, Luís de Guindosassured that price increases will not stop in March, when another 50 basis points increase to 3.5%. In this context, Brussels is optimistic, since the reduction in energy prices and the good performance of the European labor market add to the good eurozone GDP forecasts for 2023. Thus, while inflation is expected to continue to rise, it is expected to continue to rise up to 5.6%instead of the originally estimated 6.1%.
In this context, experts say that interest rates may continue to risealthough this does not go hand in hand with a collapse in economic growth. On this occasion, the ECB looks like it won't budgein the face of pressure from the governments of the eurozone countries, as they consider this to be the only formula to put an end to high inflation.
The Governor of the Central Bank of the Netherlands and head of monetary policy at the ECB, klaas knotguarantees that they will be carried out new interest rate hikes 50 basis points at subsequent meetings scheduled for March 16th and May 4th, reaching 3.5%.
But everything must come down, and it is expected that at the end of this year the Euribor will reach a ceiling so that from 2024 it will start to move in the 2.2% spread. However, we will have to wait to see how the indicator behaves during spring, a time when significant changes are expected and which will set the pace for the rest of the year.
What the analysts say
The Spanish virtual platform hipoppotamus ensures that Euribor will fluctuate between 3.5% and 4% during the first quarter of this 2023, offering an unattractive scenario for new mortgage holders, who will therefore opt to dive into a fixed rate mortgage, as fixed rates tend to be very similar to Euribor values. Likewise, they point out that financial institutions will continue to offer competitive floating rates.
in analyst of XTBJoaquín Robles, states that: “Euribor can trade between 3.75 and 4% this year”opinion reaffirmed by the Deputy Director General of the donfloorEmiliano Bermúdez, who makes it clear that the indicator will continue to rise until it crosses the 4% threshold.
And now what?
Almost all experts consulted agree with the idea that the ECB will implement a more aggressive policy, starting in March, after analyzing the behavior of new mortgage loans. However, there is also a real possibility that the Euribor will start to slow down, although this is less likely if we take into account that inflation in the Euro Zone has positioned itself at 8.5% during the month of January.
It is likely that the money price is about 3.75-4% throughout the current year, which will cause the Euribor to clearly exceed these values until inflation moderates to at least 3%. Meanwhile, Spanish families will continue to face an extra cost for the increases in monthly installments on variable mortgages that will have their conditions revised, although this depends on the year of signature of the mortgage or the principal outstanding, among other important factors.