Markets are now betting that the ECB will raise rates again in February, in March and at least once more in the second quarter, for a total of 1.25 percentage points
The Governing Council of the European Central Bank (ECB) today decided to raise the three main interest rates by 50 basis points and, based on the significant upward revision of the inflation outlook, expects to raise them further. Interest rates will still need to rise significantly at a steady pace to reach levels restrictive enough to ensure inflation returns to the medium-term target of 2% in a timely manner.”ECB communiqué of 15 December
The ‘sentence’ was given during the last time the Board of Governors of the European Central Bank (ECB) met in Frankfurt, Germany, for a monetary policy meeting. The harsh speech contrasted with a rate hike of just 0.5 percentage points, while the previous two hikes were 0.75 points.
But the effect was immediate on Euribor rates and therefore on those who have mortgage loans. The rise in interest rates that serve as an index for credit contracts has been felt since early 2022 when they were still in negative territory. And if you look at the monthly averages of the Euribor, you see that the increase was always greater month after month. That was until September. From this month, light began to appear at the end of the tunnel. The Euribor rates continued to rise, but the increase became less and less. A trend that, however, was reversed by the tough stance taken by the ECB in December last year. In January of this year, the Euribor average not only increased, but increased more than in December.
For those with home loan contracts due for review in February, the impact will be significantly felt in the next installment due to the bank. For example, for those who have their credit indexed to the 12-month Euribor, the increase can amount to more than 65% compared to the installment they paid in the last 12 months. With a 30-year contract worth 150,000 euros, with a surcharge of 1%, the difference goes from a payment of just over 450 euros to a payment of more than 745 euros. That is almost 300 euros more, an increase of just over 65%.
For those who have three or six months of credit indexed to the Euribor, the increases will not be as significant, but since February last year, holders of these contracts have already faced increases in monthly installments throughout the year. For contracts indexed to the three-month Euribor, the increase can reach almost 50% within a year and for six-month Euribor the increase can be more than 57%.
How much has it already been increased and how much will the mortgage on the house increase in February
Loan 30 years with 1% surcharge
EURIBOR 3 MONTHS
| Loan of 25 thousand euros | ||
| paid | increase | |
| February 2022 | 74.14 | |
| May 2022 | 75.37 | 1.23 |
| August 2022 | 80.84 | 5.47 |
| November 2022 | 97.85 | 17.01 |
| February 2023 | 110 am | 12:15 p.m |
| annual increase | €35.9 | |
| Loan of 50 thousand euros | ||
| paid | increase | |
| February 2022 | 148.28 | |
| May 2022 | 150.74 | 2.46 |
| August 2022 | 161.67 | 10.93 |
| November 2022 | 195.69 | 34.02 |
| February 2023 | 220.00 | 24.31 |
| annual increase | €71.7 | |
| Loan of 75 thousand euros | ||
| paid | increase | |
| February 2022 | 222.42 | |
| May 2022 | 226.11 | 3.69 |
| August 2022 | 242.51 | 4:40 pm |
| November 2022 | 293.54 | 51.03 |
| February 2023 | 330.00 | 36.46 |
| annual increase | €107.6 | |
| Loan of 100 thousand euros | ||
| paid | increase | |
| February 2022 | 296.57 | |
| May 2022 | 301.48 | 4.91 |
| August 2022 | 323.34 | 21.86 |
| November 2022 | 391.39 | 68.05 |
| February 2023 | 440.00 | 48.61 |
| annual increase | €143.4 | |
| Loan of 125 thousand euros | ||
| paid | increase | |
| February 2022 | 370.71 | |
| May 2022 | 376.85 | 6.14 |
| August 2022 | 404.18 | 27.33 |
| November 2022 | 489.23 | 85.05 |
| February 2023 | 550.00 | 60.77 |
| annual increase | €179.3 | |
| Loan of 150 thousand euros | ||
| paid | increase | |
| February 2022 | 444.85 | |
| May 2022 | 452.21 | 7.36 |
| August 2022 | 485.01 | 32.80 |
| November 2022 | 587.08 | 102.07 |
| February 2023 | 660.00 | 72.92 |
| annual increase | €215.2 | |
EURIBOR 6 MONTHS
| Loan of 25 thousand euros | ||
| paid | increase | |
| February 2022 | 74.5 | |
| August 2022 | 85.88 | 11.38 |
| February 2023 | 117.23 | 31.35 am |
| increase in one year | €42.7 | |
| Loan of 50 thousand euros | ||
| paid | increase | |
| February 2022 | 149 | |
| August 2022 | 171.77 | 22.77 |
| February 2023 | 234.46 | 62.69 |
| increase in one year | €85.5 | |
| Loan of 75 thousand euros | ||
| paid | increase | |
| February 2022 | 223.51 | |
| August 2022 | 257.65 | 34.14 |
| February 2023 | 351.69 | 94.04 |
| increase in one year | €128.2 | |
| Loan of 100 thousand euros | ||
| paid | increase | |
| February 2022 | 298.01 | |
| August 2022 | 343.54 | 45.53 |
| February 2023 | 468.92 | 125.38 |
| increase in one year | €170.9 | |
| Loan of 125 thousand euros | ||
| paid | increase | |
| February 2022 | 372.51 | |
| August 2022 | 429.42 | 56.91 |
| February 2023 | 586.15 | 156.73 |
| increase in one year | €213.6 | |
| Loan of 150 thousand euros | ||
| paid | increase | |
| February 2022 | 447.01 | |
| August 2022 | 515.31 | 68.3 |
| February 2023 | 703.38 | 188.07 |
| increase in one year | €256.4 | |
EURIBOR 12 MONTHS
| Loan of 25 thousand euros | ||
| paid | increase | |
| February 2022 | 75.05 | |
| February 2023 | 124.2 | |
| increase in one year | €49.2 | |
| Loan of 50 thousand euros | ||
| paid | increase | |
| February 2022 | 150.1 | |
| February 2023 | 248.41 | |
| increase in one year | €98.3 | |
| Loan of 75 thousand euros | ||
| paid | increase | |
| February 2022 | 225.15 | |
| February 2023 | 372.61 | |
| increase in one year | €147.50 | |
| Loan of 100 thousand euros | ||
| paid | increase | |
| February 2022 | 300.2 | |
| February 2023 | 496.81 | |
| increase in one year | €196.6 | |
| Loan of 125 thousand euros | ||
| paid | increase | |
| February 2022 | 375.25 | |
| February 2023 | 621.01 | |
| increase in one year | €245.8 | |
| Loan of 150 thousand euros | ||
| paid | increase | |
| February 2022 | 450.3 | |
| February 2023 | 745.22 | |
| increase in one year | €294.9 | |
The rate hike ends in the second quarter
And if it is indisputable that these increases in Euribor rates are already having a strong impact on the budgets of those who have mortgage loans, it is also true that the increase is not over, not least because the ECB is expected to raises interest rates again next Thursday, Monday, February 2, it should do so again in March and, predictably, again in the second quarter of 2023.
Remark:
The ECB has three reference interest rates:
– The interest rate on main refinancing operations. The rate at which banks can borrow from the ECB for a week: is currently 2.5%, but was set to zero between March 2016 and July this year;
– The deposit rate, which determines what interest banks receive on deposits with the ECB: is currently 2%. But between July 2012 and June 2013 it was zero. And between June 2013 and July this year it was negative, forcing banks to pay for the deposits they made at the ECB;
– And the liquidity supply rate, which determines the interest that banks pay when they take out overnight loans from the ECB. It is currently 2.75%.
Of a group of 59 analysts polled by Reuters, 55 said the ECB will raise its deposit rate by 0.5 points in February and should continue with an increase of the same size in March. After that, according to the same economists, the ECB should raise the deposit rate again, but only by 0.25 point, bringing it to 3.25% and ending the cycle of rising interest rates. And the doubts that exist regarding this performance of the Christine Lagarde-led entity are all in the sense that the increases could become even more aggressive.
The objective of the monetary authority is well known: to bring the average inflation rate close to 2%, a value still far from the year-on-year price growth of 9.2% recorded in December last year. To aid in the decision Lagarde and her colleagues will have to make this Thursday, the value of inflation in January will be key, the estimate of which will be known this Wednesday.
How to lower the mortgage
Regardless of what is decided in Frankfurt, holders of approximately 1.4 million home loan contracts can try alternatives to reduce the monthly installment payable to the bank. From renegotiating the credit agreement to paying off debt early, there are ways to try to avoid an effort percentage that becomes unaffordable.
Since November 26 last year and at least for the whole year 2023, new legislation has been in force that allows some of these solutions, for example allowing those who have a credit agreement indexed to a variable interest rate to make early repayments without having to pay penalties .
Consulting new solutions on the market is another avenue that can be followed to try to alleviate the monthly bill to the bank. Deco supplies a simulator that helps to estimate the advantages and disadvantages of transferring a loan to another institution. The Bank of Portugal also allows questions on the rules for mortgage loans to be answered on the Banking Customer Portal.
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