The ECB is raising interest rates and mortgage terms could increase by more than 115 euros

BCE vai subir juros e prestação do crédito à habitação pode subir mais de 115 euros


Inflation continues to give no respite and the European Central Bank (ECB) is preparing to raise interest rates again tomorrow. Analysts approached by i they expect an increase of 0.5%, but still less than the 0.75% of the past few months. It will be the fourth ascent this year.

The rise in interest rates will affect Euribor rates, which will also rise, making credit more expensive, for example by increasing the value of monthly mortgage payments. A situation that will also have an impact on those who think about borrowing.

According to the simulations made for the i through the platform CompareJá.ptinstallments can be between 34.7 euros and 134.93 euros.

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For a property with a value of 125,000 euros, payable over 33 years, if the installment was set at 362.71 euros in January (with an average interest rate of 0.81%), it has already risen to 488 euros in October (average interest rate of 2.86%) and will now rise to EUR 540.58, combining the interest with the expected increase of 0.5%. That is an increase of 52.53 euros per month, but 213.87 euros more than at the beginning of the year.

As for a property worth 186 thousand euros, payable in the same period (33 years), if it paid 535.42 euros in January, the installment increased to 726.23 euros in October. With this interest rate increase, you pay an installment of 804.38 euros in December. That is a monthly increase of 78.15 euros and an increase of 268.96 euros compared to January.

The scenario repeats itself for a house worth 257 thousand euros, also payable up to 33 years. The installment amount, which was 791.65 euros in January, rose to 1073.72 euros in October this year. If this increase of 075% goes through, you will pay a monthly installment of 1189.27 euros in December. After all, 115.55 euros more per month and an increase of 397.62 euros compared to the beginning of this year.

For João Melo, director of home loans at ComparaJá, “2022 was without a doubt marked by the exponential and constant rise in interest rates on mortgage loans, as we are witnessing the strongest increases in the history of banking. Although interest rates have already been at higher rates than in 2008 or 2012, the truth is that interest rate fluctuations have suffered at a level they have never experienced before,” he refers to our newspaper. He adds: “The main consequences of this phenomenon have already been noticed and coupled with the fact that house prices have not fallen, the total amount that banks have made available for home loans has fallen month after month and in October there was a one of the worst records of the last two years”.

While the official reminds that these increases are general for the European context and have an impact on the entire Eurosystem, he guarantees that “in Portugal, this phenomenon has assimilated values ​​of another dimension. Since January 2017, mortgage interest rates in Portugal have not exceeded the European level and the month of October has changed this record, as the average European rate is 2.61% (as opposed to 2.86% Portuguese)”.

Ricardo Evangelista, analyst at ActivTrades, underlines the negative impact for those who have to pay loans. “Floating rate lending rates will continue to rise along with the rise in ECB reference rates,” he emphasises.

Paulo Rosa, economist at Banco Carregosa, reminds that “this 50 basis point increase will not visibly change Euribor rates” as they already partially discount this increase. And he anticipates: “A possible announcement by the ECB about the shortening of its balance sheet, the so-called quantitative tightening – in which financial reserves circulating in the market are withdrawn 🇧🇷 linked to a pledge by the Eurozone central bank to slow the rise in interest rates could ease the burden on households that have loans linked to Euribor”.

Eduardo Silva, director of XTB Portugal, also mentions that taking into account the latest inflation figures in the Eurozone, it is possible to see a less aggressive rise at this stage. “Nevertheless, inflation remains close to the maximums, and this means that the ECB will have to maintain a policy of monetary tightening in the medium term until inflation is under control.”

As for families, he is not hesitant: “The impact is that families continue to be under pressure from the rise in the cost of living. With the increase in credit and with the expectation that the medium term will continue to be painful, the expectation that they will consume less is a factor that ultimately serves to contain the price increase.”

Trend continues

With inflation still far from the ECB’s medium-term target of 2%, the rise in interest rates is likely to continue, even at the risk of the economy slowing down.

Ricardo Evangelista believes that the central bank should continue to raise interest rates to 3% in 2023: “This means that after the expected 0.5% for this Thursday, we still have one percentage point more in the coming year”. However, he believes that next year the pace of rate hikes should slow down: “We may get four 0.25% hikes. But this is a scenario that is not guaranteed and may need to be adjusted if inflation falls faster than expected, or if inflation remains elevated despite monetary policy tightening.”

Paulo Rosa, on the other hand, expects an increase of the same magnitude of 50 points at the first meeting of 2023, on February 2, but foresees a slowdown to 25 basis points on March 16, “leaving at that time the interest rate on The ECB will be set at 2.75% , very close to the currently expected final interest rate, with the market expecting the same final interest rate for Eurozone interest rates to be around 2.8%. That is, currently the ECB’s reference rate is 1.5%. A 50 basis point increase on December 15 will push that rate up to 2%. An increase of more than 50 points on February 2 brings the rate to 2.5%, peaking at 2.75% on March 16 with a 25-point increase.”

Eduardo Silva, from XTB Portugal, also believes that “tightening monetary policy will have to continue to cool consumption and consequently inflation” and says that “over the medium term we will continue to see increases, more or less aggressive depending on of the evolution of inflation”.


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