The European Central Bank (ECB) announced its largest-ever hike in key interest rates (75 basis points) on Thursday. As families deal with the rise in food and energy, another tightness is expected for those who have home loans as the rise in interest rates affects Euribor, directly affecting the payment of the house. Analysts polled by Dinheiro Vivo predict that the 6-month Euribor rate (most commonly used for home purchase loans) will reach 2% by the end of the year. If this happens, the mortgage burden can in some cases increase by more than 150 euros.
According to Filipe Garcia, economist and president of the IMF, the market gives “discounts on a Euribor” [a seis meses] close to 2.25%” and it is possible “to get close to 2.5% in eight or nine months and stay at those levels”.
Yesterday, the 6-month Euribor was 1.354% higher, 0.009 points lower than the day before. Filipe Garcia warns that before the ECB’s announcement, Euribor “already reflected” the hike in key interest rates. The ECB has even said it expects to continue raising interest rates in the near term – at least twice as much. “What we continue to see is that the market has accelerated rate hikes, but the final interest rate of this cycle has not risen at the current level, with the cycle ending at the end of the first half of 2023” underlines Filip. Garcia.
Economist Pedro Lino, president of DiF Broker and Optimize, believes that “six-month Euribor is expected to reach 2% even before the end of the year, due to the rise in interest rates at the next ECB meetings and the of this policy in 2023”.
The analyst believes that the “impact of this increase in the [anunciada ontem] was remaining, as ECB governors have delivered a more aggressive speech in recent weeks, showing that their stance on the pace of interest rate normalization has changed.”
“The effect is discounted for now”, but with the ECB’s pledge to continue to encourage rate hikes, “rates are expected to [Euribor] continue to rise, but more residual in the coming weeks”.
The reading is confirmed by Henrique Tomé, analyst at XTB, who states that “a continuation of the rise in the Euribor rate can be expected in the various maturities, despite the recent declines at six and twelve months”.
House payments will increase
The Euribor rates are determined by the average of the rates at which a group of 57 banks in the eurozone are willing to lend each other money on the interbank market. More than 90% of mortgages have a variable interest rate, ie they follow the Euribor variations. Assuming that analysts predict that six-month Euribor will reach 2% by the end of the year, the installments that households pay with mortgage loans to the bank will rise significantly.
According to simulations requested by Dinheiro Vivo of Deco Proteste, a family with a loan of 100,000 euros for 30 years, indexed to 6-month Euribor (0.837%, August average) and with a spread of 1% in September, pays an installment of 361, 52 euros. If the 6-month Euribor reaches 2%, the mortgage payment can increase by more than 60 euros to 421.60 euros if the credit conditions are revised.
Under the same conditions, but taking into account a loan of 150 thousand euros, a term of 542.28 euros in September can increase by more than 90 euros to 632.41 euros, if the six-month Euribor reaches 2%.
If a family has a loan of $200,000, the installment on the house can skyrocket by more than $120 to $843.21, and if the loan is $250,000, the bank installment can jump from today’s $903.80 to $1,054 .01 euros, plus 150.21.
Euribor (at 3, 6 and 12 months) has started to rise sharply since February 4, after the ECB admitted it could raise key interest rates throughout the year as a result of rising inflation in the eurozone, a trend exacerbated by the Russia’s invasion of Ukraine on February 24.
In July, however, the body led by Christine Lagarde raised the benchmark rate by 50 basis points to 0.5% for the first time since 2011. Yesterday, the increase was more ambitious, at 75 basis points, bringing the ECB’s main interest rate to 1.25%.
The ECB’s main target, reiterated yesterday by Lagarde, is to reduce inflation, which stood at 9.1% in the eurozone in August, to the target of 2%.