The effect on families of the rate hike: more expensive mortgages and better paid deposits | My money

The European Central Bank (BCE) has raised interest rates by 75 basis points, to 2%. It is the third consecutive increase since July. Continue like this with your restrictive monetary policy, whose objective is to reduce the amount of money in the market, in order to deal with soaring inflation. The impact on families pocket It has been noticeable for weeks: loans are becoming more expensive, especially variable mortgages linked to the Euribor, and deposits are increasing their profitability. This trend will continue with the new rate hike. The Euribor will continue to rise and financing will be even more expensive, while you can get more out of the savings.

Rising cost of mortgages

A rate hike implies higher financing costs. Thus, the approximately 4.1 million people with variable-rate mortgages in Spain will see their installments increase when they are reviewed. benchmark index euribor has intensified its climb in recent months and in October it has exceeded 2.7% in the daily price for the first time since January 2009. The monthly rate exceeds 2.6% compared to -0.477% a year ago, how they will be paid on average 228 euros more per month or 2,736 euros more per year.

The effect on families of the rate hike: more expensive mortgages and better paid deposits

“A storm is brewing for those with variable mortgages. The rise in rates will trigger the Euribor even more”, says Miquel Riera, a mortgage expert at the financial comparator, where they believe that it is “more than likely that the index will be around 3% in December”, something that is not It had been going on since the 2008 crisis.

According to the comparator, that the Euribor reaches that level will significantly increase the price of all variable mortgages that are reviewed in the coming months. Its analysts calculate that, on average, its shares could increase by more than 30% approximately. In his opinion, those mortgaged at a variable rate should anticipate the rise in their installments and talk to their bank as soon as possible to try to negotiate some measure that helps them cushion the blow.

In fact, in this context, banks are looking for solutions to cushion the rise in monthly installments and thus avoid a rebound in non-performing loans. The ideal, according to the Bank of Spain, is that the new monthly payment, added to that of other credits, does not exceed 35% of the monthly net income.

If the mortgaged want to free themselves from the Euribor, there is the option of changing the mortgage from variable to fixed. But, precisely in the face of the rise in interest rates, financial institutions have made fixed interest rates more expensive and it is already difficult to find fixed mortgages on the market with an interest rate below the Euribor. Most exceed 3% APR. In addition to making financing more expensive, banks have tightened the criteria for granting mortgages and foresee a contraction in credit in the final stretch of the year due to the continuous rise in rates. In fact, in Idealista they reveal that mortgage applications managed through the portal that have been rejected have increased from 1.8% to 12%. They calculate that in a future environment with effective rates at 4%, the percentage will reach 20%.

Better returns on deposits

The deposit facility, which is the interest rate at which the ECB remunerates overnight deposits, stands at 1.5%, the highest level since 2009. It is to be expected that the savings remuneration continue to rise. After several years of returns close to 0%, the picture has changed significantly and some deposits already exceed 2% APR in Spain and even 3% APR in Europe. “For years we have not seen such a hectic movement in terms of interest rates on interest-bearing accounts and deposits,” they comment in Rankia.

Digital banking and foreign entities are the ones with the best offers, given their greater liquidity needs. Mónica Pina, head of the Raisin platform in Spain, affirms that “since the ECB’s first announcement we have seen how interest rates have risen at the fastest rate for decades, and we expect the rises to continue”. A few days ago, the Italian Banca Sistema exceeded the 3% barrier by offering a 3.28% APR for five years. In shorter terms, such as one year, Banco Progetto (Italy) rents 2.50% APR.

Among the entities that operate in Spain, the interests of Wizink deposits stand out, of up to 2.50% APR at 36 months and the Tú+ Deposit of Renault Bank at 2.32% APR at 24 months.

The largest banks have not yet taken part in the new battle for deposits, although some have improved the remuneration of the accounts, especially in exchange for customer loyalty.

Data from the Bank of Spain reflect a change in the trend in interest rates on new deposit operations. The weighted average rate has risen to 0.10%, its highest level since September 2017, and the term interest for more than one year and up to two years has increased to 0.63%, levels not seen since February 2015 .

“There are banks that will continue to need liquidity to continue with their operations and, consequently, they will compete to attract customers in the coming months,” says Pina, who considers that “in this context, it is normal that savers are not clear about what to do and that confusion contributes to keeping them waiting for further increases in interest rates”. However, she recommends “don’t wait” because “calculations show that waiting is almost never profitable.”