No one is already oblivious to the phenomenon of inflation in Spain. The price increase has been occurring after the acceleration in demand after the covid, with the bottlenecks in the supply chains, and with the aggravation of the war in Ukraine. This has caused the CPI in Spain to be above 10%. Levels not seen since the 1980s. How does this affect when taking out a mortgage?
The reality is that the rise in prices affects, above all. Thats the reality. The different sectors seek to adjust to the moment and therefore are forced to progressively increase prices so as not to reduce their margins to an extreme. This is what has always happened at times when there have been greater inflationary pressures.
And it is that with the rise in prices, capital progressively loses value. In this sense, inflation, however, does not only affect the money we earn each month, but also the money we owe to the bank. A clear example of its consequences on debt can be found in mortgage loans.
For example, inflation causes the European Central Bank have to make a move to lower it with increases in interest rates, which negatively affects variable-rate mortgages: these are linked to the Euribor and cause the installments to increase considerably as the rates are revised upwards.
Ricardo Guliasdirector of RN Your mortgage solution, summarizes it as follows: “For every 100,000 euros in a mortgage, a rise of one percentage point in the Euribor translates, on average, into an increase in the installment of around 60 euros.” That is the calculation that users must have as a reference.
The interest to return to the bank for our mortgage loan is marked largely by the Euribor, so if it goes down, your mortgage payment will also go down, and vice versa in the opposite case.
It should be remembered that the Euribor was at historical lows since February 2016 and it was believed that it would not pick up again until 2030. For this reason, many people decided to contract variable mortgages instead of fixed ones.
However, the sharp rise in the CPI has forced central banks to consider tightening their monetary policy sooner than expected. In this way, mortgage payments are expected to begin to rise as they did last November of this year. But not big climbs.
As for fixed-rate mortgages, the situation is somewhat different. Despite the fact that in recent years it could be much more expensive than the variable rate, it is in these cases where it generates a real advantage. Of course, a large price increase is not expected, so it is currently difficult to predict if it has been a good or bad choice.
However, inflation causes money to lose value, both the one we enter and the one we pay. This can be beneficial for families with fixed mortgages, since when the CPI exceeds the interest on the loan, we could say that inflation pays part of the mortgage.
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