Low interest rates have been the trend in recent years. However, the European Central Bank (ECB) is going to vary its monetary policy to try to contain inflation, and that will change the direction of the price of money. The first increase in eleven years by the central bank will not take place until next July, with an increase of 0.25%, saving for September a second increase even higher. But how can consumers be affected?
“We have become accustomed to zero and even negative interest rates. Now, the increases imply a normalization that will make people pay for credit again and charge for savings,” he says. Santiago Carbóprofessor of economics at the University of Granada and director of financial studies at Funcas.
The Euribor, the reference indicator for most mortgage holders, has already been raised by these expectations. In fact, its value has multiplied by three so far in June, surpassing 1.1% after it marked 0.361% on May 30. The consequences will be seen by those who review their variable-rate mortgage payment -which makes up 75% of the total of these loans-, going on to pay more for their house.
40 euros more per month
According to calculations by the Spanish Mortgage Association, one point increase in the Euribor represents an increase of between 10% and 12% in the monthly installment of an average mortgage, which can translate into about 40 euros more per month. “The price of mortgages rises but, for a long time, it will be affordable. In addition, most of those that are subscribed are already at a fixed rate,” he adds Coal.
In fact, switching to a fixed-rate mortgage is the solution suggested by experts for those who want to protect themselves in this regard. The objective can be achieved with an agreement with the banking entity to convert it, or through a subrogation with another entity, depending on Edgar Javier Saíz, professor of commercial law at the International University of Valencia. Consumers will also see how borrowing with any loan becomes more expensive, according to Ricard Garrigathe CEO of Trioteca.
However, there is fear that the rate hike will lead to a further slowdown in the economy, “taking into account the reduction in household consumption, as well as business investment”, the main components of the GDP of advanced economies, As it explains Juan Carlos Figueresprofesor de EAE Business School.
Regarding banking products, deposits should receive a higher remuneration after a long period without attractive interest. However, experts point out that it will take time for the effects to spread to these products, at least until 2023. The bonds, for their part, will also go towards greater profitability, he adds Garriga.
The Stock Market also currently reflects the effects of inflation levels and the uncertainty surrounding rates. And the damage is reaching most sectors, except banks, and little else. These can generate intermediation margins, which had been sunk with the minimum or negative rates that had been dragging on. Despite the fact that non-performing loans could increase, “the sector will endure due to the high capital ratios of entities. It is highly protected,” he adds fig trees. Insurers will also have the opportunity to invest at positive rates and benefit from the circumstances.
Among those affected, the real estate sector stands out, with purchases that have gone from breaking records to predictably stabilizing or falling, with potential clients who are losing purchasing power. And, together with the brick, both companies that see a reduction in sales as effects – such as technology companies – and especially those with a high level of indebtedness, such as electricity companies, will have losses. Although, the most affected companies will be SMEs, “which represent 98% of the total business fabric, and which will see more difficulties in obtaining credit and investment”, highlights fig trees.
The Government is also among those affected and, in fact, will be greatly affected by its high indebtedness, for which it will also pay higher interest. “This will be transferred to more taxes, surely, starting in September and October to reduce the public deficit,” predicts the EAE Business School professor.