For the first time in 11 years, the European Central Bank announced to raise by 50 basis points the three reference interest rates: on the main refinancing operations, the marginal lending facility and the deposits with the central bank will be 0.50%, 0.75% and 0.00% respectively, with effect from 27 July 2022. This means to increase the cost of money. If eurozone banks pay a higher cost to borrow money from the ECB, eventually mortgages and variable rate loans from households and businesses will also be more expensive.
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The effects for households and businesses of the rise in interest rates
But what are they the effects of the rate hike decided today by the ECB on mortgages? This increase will have a direct and proportional consequence only on few variable mortgages indexed precisely to the Frankfurt rate; these are products which, with equal spreads, all banks are required to offer as an option to products linked to Euribor but which have received little interest. This is mainly because theEuribor lower than the ECB rate for years. As for the products linked to Euribor, which, we remind you, represents the cost of money exchanged in the short term (from 1 day to 1 year) between banks, since the beginning of the month they have partially discounted the increase decided by Frankfurt, aiming for on an increase of 25 cents and not 50.
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Variable rate mortgages
L’Euribor at 1 month, in fact, from 1 July to yesterday, it rose from -0.51 to -0.26%; the three-month benchmark, considered the benchmark rate for variable rate mortgages, which went from -0.18 to +0.13. They are 31 cents, which must be added to the other 40 recorded since the beginning of the year, when the 3-month Euribor was quoted at -0.58.
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The simulation on the installment of the variable rate mortgage
its a mortgage from 200 thousand euros to 30 years for every 25 cents of a point, the increase of the installment of about 24 euros per month (and therefore 48 if the Euribor absorbed all the 50 cents increase); at the age of 20, an increase of 18 euros every 25 cents.
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What changes for fixed rate mortgages
Despite the increase, variable rates still cost significantly less than fixed rates: from a survey carried out on the market this week and that we will publish next Monday in L’Economia del Corriere it should be noted that in the average of best offers at 20 years the fixed rate is 3.10% against 0.97% of the variable; at 30 years the fixed at 3.08% against 1.08 for the variable.
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The effects on the installment of the fixed-rate mortgage
Translating these figures into monthly installments for the loan of 200 thousand euros in our example means that at 20 years for the variable one would spend 920 euros against 1120 euros for the fixed, at 30 years 630 euros for the variable compared to 851 for the fixed. These are very sensitive differences that explain the sharp increase in floating rate requestswhich went to represent 35-40% of the market against 5% at the beginning of the year.
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Choices to make: which mortgage to choose?
Looking ahead, it is likely that we will see an increase in the cost of mortgages, partly linked to the upcoming decisions in Frankfurt (the increase of 50 cents was expected, but “split” into 25 cents today and 25 cents in September) partly linked to politics of banks that could raise their spreads. At this stage, only those who have a fixed-rate mortgage in progress can feel absolutely comfortable, those who have it or are choosing it at a variable rate will have to take into account further increases.
But also those who start the process today for borrow at a fixed rate he must keep his fingers crossed because he will discover the rate only when the bank gives the approval to the loan and theEurirs, the parameter to which fixed mortgages are linked is extremely volatile, and can change by as much as half a point in the space of a week. And unlike what happens with the variables for which the calculation parameter pi spread is made every month in the fixed ones, the calculation takes place once and for all, and if it goes wrong to save you have to subrogate the mortgage.
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