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How high can the Euribor rise and what are the consequences?

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The Euribor has experienced an unstoppable rise since January 2022, reaching a rate of 3.647% in March 2023.

This rise exceeds previous rises, which represents a burden for variable-rate mortgagors. Since its creation, the Euribor has undergone three periods of rises, the current one being the highest. It is difficult to make forecasts about the evolution of the Euribor, as we find ourselves in a scenario of uncertainty, with high inflation and a possible financial crisis due to the collapse of Silicon Valley Bank and Credit Suisse.

The European Central Bank will have to strike a balance between controlling inflation and avoiding a standstill in the euro zone economies. The rise in the Euribor will be felt in the pockets of those who have to revise their repayments, as the monthly mortgage payment will rise by around 190 euros for every 100,000 euros of outstanding capital, which means paying around 2,280 euros more per year for every 100,000 euros.

March inflation has fallen sharply to 3.3%, although core inflation is still far from the European Central Bank’s target of around 2%.

Will the Euribor continue to rise?

Given the current uncertainty, it is difficult to know how far interest rates may rise and for how long. At the moment, we are faced with two situations affecting interest rates:

On the one hand, we still have very high inflation which the central banks of the various economies, including the European Central Bank, are trying to curb by raising interest rates, which inevitably leads to a rise in the Euribor. On the other hand, we are facing a slowdown in the economies and a possible financial crisis due to the collapse of Silicon Valley Bank and Credit Suisse, something that a rate hike could further aggravate: the European Central Bank will have to find a balance between controlling inflation and avoiding economic slowdown in the Eurozone.

In this scenario, it is very difficult to make forecasts. The priority at the moment is to try to curb inflation, so it is realistic to think that rates will continue to rise, but it is also necessary to avoid economic slowdown, so a balance has to be found.

Changes in mortgage offers

What is changing are the conditions of the mortgages offered by banks. Practically all banks are raising the interest rates on their fixed-rate mortgages and are lowering both the initial interest rates and the spreads applicable to variable-rate mortgages, which indicates that financial institutions also believe that the rise in interest rates will be sharper than initially expected: it is now impossible to take out fixed-rate mortgages for a term of 15 years with an annual nominal interest rate of less than 2%.

It should be remembered that in order to offer a fixed interest rate for a given term, institutions use the rate evolution forecasts of their analysis departments and will always offer a higher rate than the one they forecast for the long term. Given the current fixed-rate loan offers, banks do not seem to foresee significant rate rises in the medium to long term. Only an error in the banks’ forecasts, which is unlikely, would favour those who take out a fixed rather than a variable rate.

Moreover, in a context of rising rates, the most favourable thing for banks should be to maintain or increase their portfolio of variable-rate mortgages. The most advisable thing for those who opt for mortgages of this type is to calculate a margin of savings or sufficient income to meet the increases in repayments that occur over the life of the loan.

About The Author
Israel Huertas Salazar

Inmobiliaria en Torrox. Ofrezco un trato personalizado y una contrastada experiencia como intermediario en la compraventa de inmuebles de todo tipo, oportunidades y grandes inversiones inmobiliarias, en diversas ubicaciones, tanto en Torrox, como Nerja, Frigiliana, Torre del Mar… y gran parte del territorio andaluz. Como broker inmobiliario, colaboro en red con todas las inmobiliarias y empresas promotoras y puedo conseguir la propiedad de su interés.