The Impact of the ECB’s Interest Rate Decision on Mortgages: Variable Rates Recommended

Lagarde and the ECB They are in focus. Interest rates are very high and requesting a variable rate mortgage may seem crazy due to the cost, but the market takes for granted that the increase decided by the European Central Bank (ECB) It will be the last one there is, among other things because further increases will harm companies and the population even more, with financial entities being the most benefited. In this framework, market sources point to a minimum period of one year until a possible rate drop can be seen, which is not certain, and therefore, they estimate that the best option for those who already have a mortgage is to keep it at a variable rate even if it is more expensive in the short term, while they consider that those who have to apply for a mortgage, the recommendation is to request a variable rate.

According to market sources consulted about the repercussions of the measure taken by the ECB, “it makes no sense to request a fixed mortgage or change to a fixed rate at this time.”

THE COMPLICATION OF THE ECB

The European Central Bank (ECB) has greatly complicated the lives of companies and individuals with the rise in type of interest up to 4.5%, which will increase the fees of those who have to review their variable mortgage. It also makes it difficult for those who want to acquire a mortgage, but according to market sources it will be temporary. “The markets discount that this is the last rise and have sent that message.” Inflation may remain high due to oil prices, but economies cannot allow themselves to be happy, they have to grow and if rates continue to rise, there will be growth problems,” say market sources.

The European Central Bank (ECB) has greatly complicated the lives of companies and individuals with the increase in interest rates to 4.5%

What the ECB transmits, through its president Christine Lagarde, is just the opposite, but the markets do not believe what was said by the number one European issuing bank. And the Frenchwoman Lagarde has stated that interest rates “have reached levels that, if maintained for a sufficiently long time,” will contribute “substantially” to returning inflation to around 2%, although it has not been addressed what is meant by ‘sufficiently long time’. She has subsequently clarified that the phrase does not necessarily equate to us being at the “peak” of rates.

FIXED MORTGAGE VS VARIABLE MORTGAGE

This position of the President of the ECB, Christina Lagardeis, on paper, a boost to those who opt for a fixed mortgage, but the levels at which they are now, “is absurd” because the fixed mortgages that exist, in general, are expensive, and there are almost none that be fixed for one year and then variable.

However, there are more options. Do those who are betting on a mortgage and want security until it clears, for example? in the ING proposal a good option. In practice, it is a mixed mortgage, since it is a variable mortgage with the option of paying a fixed interest at the beginning, whether for one year or three.

What ING offers is that users can enjoy having the first fixed year or the first 3 fixed years and forget about whether the interests rise or fall during that time. Afterwards, your installment will be updated every 6 months depending on the Euribor (the Euribor plus the differential that you have signed will be applied).

Those who are betting on a mortgage and want security until it clears, have a good option in ING’s proposal

The mortgage with the first fixed year is “the one for life”, while the novelty is that ING has included a second option, a variant by which the client can pay a fixed interest for 3 years and then, the rest variable type.

THE COST OF THE PASSAGE TO FIXED AND THE SÁNCHEZ GOVERNMENT

In this sense, even from the point of view of aid measures, time is running out to go from variable to fixed. Let us remember that the Government of Spain approved a decree not to pay the commissions associated with changing a mortgage from a variable to a fixed one. This decree was established on November 22, 2022 and will be in force until December 31, 2023.

The Government of Spain approved a decree to not pay the commissions associated with changing a mortgage from a variable to a fixed one

In this decree Law 19/2022 published in the BOE on November 22, which establishes a Code of Good Practices to alleviate the increase in interest rates on mortgage loans for primary residences, it is said that: “From the entry In force of this royal decree-law and until December 31, 2023, no compensation or commissions will be accrued for reimbursement or total and partial early amortization of the mortgage loans and credits at a variable interest rate provided for the factual assumptions contemplated in sections 5 and 6 of article 23 of Law 5/2019, of March 15, regulating real estate credit contracts. No type of commission will be accrued during this period for the conversion from variable rate to fixed rate of said loans and credits”, that is, the owners will not have to pay the commissions associated with converting a variable mortgage to a fixed rate mortgage if They make the change during the period in which it will be in effect.