The ECB raises interest rates: how it affects mortgages

The rise in rates drives the Euribor, the main indicator for variable mortgages, which could close September at around 2% The increase would mean monthly increases of close to 170 euros for those who review their loan Experts recommend moving to a mortgage loan at fixed rate to avoid quota increases The European Central Bank will raise interest rates this Thursday to deal with the incessant increase in inflation. The new record registered last August, when it reached 9.1%, puts strong pressure on the ECB, which will have to decide whether to carry out a rise of 0.50 points -like the one made in July- or if it adopts a more aggressive and opts for a rise of 0.75 points in the price of money. “The market is already discounting that the rise is going to be higher than that of July and that has caused a brutal acceleration of the Euribor in recent weeks,” explains Antonio Gallardo, head of Studies at the Association of Financial Users (ASUFIN). The twelve-month Euribor, the main indicator to which variable mortgages in Spain are referenced, closed August with a monthly average of 1.25%. With the evolution of the first days of September, forecasts indicate that it could approach 2% this month. How much will the mortgage become more expensive? The rise in the Euribor will cause monthly increases of around 115 euros for every 100,000 euros of mortgage for those who have to review it in September. This implies, for an average mortgage of 150,000 euros over 25 years, almost 170 euros more per month and an increase of more than 2,000 euros in the annual calculation. Although the evolution of the indicator will depend a lot on the ECB’s decision this Thursday, and on the messages it launches to justify the rate hike, Asufin estimates that the Euribor could close the year at 2.2%. This would imply monthly increases of 200 euros per month in an average mortgage, and that would approach 2,500 in a total of one year. What to do to reduce the impact of the increase? “All variable mortgages are now susceptible to getting worse. But there are segments, the most recent and expensive ones, or those with very high spreads (those signed between 2010 and 2015 after the bubble burst) in which the alarms are even greater. Among the latter there are many with Euribor +2, in which the rise will have a huge impact”, says the expert. That is why he recommends moving to a fixed-rate mortgage, although he acknowledges that they are being offered less and less by financial institutions, which are promoting the variables to benefit from the rise in interest rates. Even so, and despite this change in the mortgage business of the banks, last June (the last with official data) seven out of ten mortgage loans were signed at a fixed rate. Go from variable to fixed rate? “The rates of fixed mortgages are rising, every day they are a little more expensive. The one that you could contract in June is no longer the one of now, when it is not easy to find below 2.5%. But they are still an option, although banks may not advertise them”, explains the expert, who recommends making the change as soon as possible. “The sooner we put a stop to find out what the fixed expense will be in the mortgage installments and that we know that it will not go any further, the better,” he insists. And it is that, he says, the increases in mortgages at a variable rate may be even more important in 2023. Of course, he recognizes that for those loans that have a few years left, and that have differentials of the environment 0.5 points, the option of savings by switching to a fixed rate mortgage is less and may not compensate for the changes. How to make the change to a fixed rate? For those mortgage holders willing to change their variable rate loan for another at a fixed rate, Asufin banks to compare the best options. “Fortunately, the market is very active in hoarding mortgages from other entities. They are a very good option, they are old mortgages that have already amortized capital. With housing prices continuing to rise, they are a safe value for the bank. It is profitable for the entity and it is something that consumers can take advantage of to obtain better offers,” explains Gallardo. At the time of subrogating the mortgage with the new entity, he recommends, above all, to monitor the links required by the new contracts. “The interest rate is important, but we must bear in mind that the main risk is that the bank uses the client’s need to force him to contract more services, such as an alarm, or insurance, which are generally expensive,” he warns. And he encourages you to lose your fear of making changes to loans. “You have to lose the fear of thinking that what has been contracted is forever. We are talking about products with a very long life and if in 10 years the conditions are different, you can negotiate and change again.”