The rise in interest rates to 2% by the European Central Bank (ECB) to contain inflation is impacting the pockets of families in two opposing directions. On the one hand, loans become more expensive, especially variable mortgages linked to the Euribor and, on the other, deposits increase their profitability.
The Euribor, the index to which most variable-rate mortgages in Spain are referenced, has seen its value skyrocket. In November, the average for this indicator reached 2.8% and in December, it is getting dangerously close to 3%. On a practical level, these data mean that, for a person who has a variable rate mortgage of, for example, 150,000 euros for 25 years, the increase in their monthly payment would exceed 150 euros per month.
When would this situation normalize? BBVA Research, BBVA’s research service, indicates in its latest report that the Euribor is expected to continue to increase in the next 12 months and stabilize at the beginning of the following year. In the case of interest rates, “although we see room for a moderate relaxation later, with falling inflation and rising unemployment, monetary policy will continue to be clearly restrictive during 2023,” explains Joaquín García Huerga, director of Global Strategy of BBVA AM
However, there are experts, such as the economist Ramón Rey, who foresee that the situation could subside a little sooner. “During 2023, the federal reserve (the central bank of the United States) will begin to lower rates and then the Euribor will drop, not to negative rates, but it will drop.”
Faced with an uncertain economic outlook, a restriction of spending by families is expected. “We expect a slowdown in consumption growth in 2023 as some of the factors that have sustained it this year disappear: the household savings cushion and a market
work that shows signs of exhaustion”, affirms García Huerga.
In the case of mortgages, the impact on each person’s finances will depend on the increases that the indicator continues to register in the two different review periods. If the increase in mortgage payments poses a problem for personal finances, now is the time to take action. “The first rule is to adjust expenses to income,” says Ramón Rey.
For this, it is essential to study each personal and family situation in detail. “The most important thing is to do numbers to know the amount that the rise in interest has meant,” explains Juan José Herranz, a trainer in financial products and markets. “Once its magnitude is known, we will be able to take the appropriate measures for each case. For example, reduce unnecessary expenses: trips, outings to restaurants, etc., if it were enough for us to finish the month”.
In addition to correct planning, according to this expert, it is always convenient to “be attentive to market movements and inflation.” In addition, the importance of good advice must not be neglected. “Financial entities have advisers who can inform us and, in the event of having debts, give us the best options to carry out the financial burdens,” says Herranz.
In the case of the mortgage, if the cuts in spending were not enough, there is the possibility of “reunifying or refinancing our mortgage debt with the bank to extend it over time, going from 10 to 15 years, for example, and reducing the monthly fee to the extent that it is not harmful to us, ”says Herranz. “Financial entities are currently collaborating on measures to negotiate, on a case-by-case basis, the measures to alleviate the financial situation of the affected families.”
Once your finances are in order, you may consider increasing the value of your savings. “The range of possibilities expands,” explains this specialist. “We will be able to invest in any asset that has an assumable risk in each case and diversify the investment: fixed income, variable income, investment funds, savings or pension plans.” Ramón Rey agrees with this strategy. “Savers won’t have to protect themselves as much, as interest rates can’t go much higher,” he explains. “This is a good time to take positions, both in the long term and in the short, being aware that you have to diversify and be patient.”
