The reference rate for the majority of variable mortgages in Spain, the Euribor, has risen today after learning yesterday of the decision of the European Central Bank (ECB) to raise interest rates to 4.5%, which is close to again, after moderating in August, to July levels and consolidating at the highest rates since the end of 2008.
In its daily indicator, the reference interest on mortgages today stands at 4.169%, compared to 4.055% at the beginning of the month. It also adds five days to the rise, boosted by the increased probability in the markets that the ECB would finally raise interest rates, as it ended up happening. It is the highest daily Euribor since the 4.174% on July 13 and is close to the maximum in fifteen years marked on July 7, of 4.193%.
“In the coming months the Euribor will foreseeably draw a sawtooth curve, with rises and falls, although the forecast is that it will not reach more than 4.25% to stabilize between 3.75% and 4.25%, and then start a downward trend,” says Antonio Gallardo, head of studies at the Asufin banking users association.
In the monthly average so far in September, the Euribor is trading at 4.09%, above the 4.07% in August, but still below the 4.14% in July. The experts’ forecast is that in September, after the last increase, the August levels will be exceeded.
“The inflation data and the price of crude oil were increasing the probability of a rate increase,” says Natalia Aguirre, an analyst at Renta 4. “The market interprets that it is the last rate increase, so the Euribor should not rise much more”, although uncertainty remains. “We continue to live off of data dependence,” she says, alluding to the ECB’s speech about the weight of each macroeconomic data in its decisions.
An average loan of 150,000 euros for 25 years with a spread of 1% has gone from having a payment of 565 euros before the start of the interest rate increases to 885 euros currently. The increase already exceeds 300 euros per month, according to the simulator of the Spanish Mortgage Association (AHE).
AHE analyst Leyre López indicates that, with the current interest rates on loans, debt repayments are gaining strength among consumers and also mixed mortgages, in which up to the first ten years are at a fixed rate, to move on to variable later, when the principal is smaller. “With the current trend, mixed mortgage contracts have doubled and are now 30%, to the point of surpassing variable mortgages,” she says. The fixed ones are now around 45%.
Gallardo indicates that, although there are not many drops in housing prices, the amount of the average mortgage is reducing. “Given the rise in financial costs, the most economical homes are sought,” which serves as an indication of possible future reductions.
The forecast that the Euribor will stabilize from now on has a lot to do with Christine Lagarde’s message yesterday, who after raising interest rates indicated that the current level, “maintained for a sufficiently long period, will contribute substantially to inflation returns to the target in due time.”
For DWS, with yesterday’s rise “the cycle” of monetary policy is completed and the time has come to keep “your feet still.” Miguel Ángel Rico, Chief Investment Officer at Creand Asset Management, says that “the markets are convinced that this is the ceiling on interest rates and that there will be no further increases”, while Patrice Gautry, chief economist at Union Bancaire Privée, states in a report that “the probability of further rate hikes is becoming less and less.”
