The Euribor reached 1.2 per cent in August and mortgages are about to become more expensive

The interbank lending rate ended the month at the highest level for ten years and monthly loan repayments are likely to go up by an average of 120 euros a month

José María Camarero

Madrid

Wednesday, 31 August 2022, 19:06

The Euribor rate has once again made its presence felt in the lives of households, almost without warning, as it has risen to 1.2% at the end of August, breaking all records. This is the highest level since the summer of 2012, and it ... has risen to this point since being at -0.5% last December.

The Euribor is the Euro Interbank Offer Rate, the interest rate at which European banks lend funds to each other. It changes daily.

All through August, the Euribor has been increasing and the outlook for September is not promising. The market cannot rule out the possibility of it reaching 2% before long.

With this figure on the table, households whose mortgage loans are about to be reviewed can now do their accounts, and it will not be good news for their budgets. There has not been such a leap from one year to another since 2000, because the indicator has risen by 1.7 percentage points in the past 12 months.

Significant increases

For a variable rate mortgage of 150,000 euros over 25 years, with a differential of 1% plus the Euribor and reviewed annually, households will go from paying 550 euros a month to 670 euros. That is an extra 120 euros a month, or more than 1,400 euros a year.

A similar mortgage but with a 180,000 loan will rise from 640 to 785 euros a month.

The financial problem will be even worse for those whose mortgages are reviewed every six months, as their repayments will rise for the second time this year. The first was in February; since then they have been paying 13 euros more a month. Now, they are facing having to find another 140 euros a month.

Aware of this possibility, many people who have bought a property in recent months (73% of the total) have opted for a fixed rate mortgage rather than one with a variable interest rate (27%). For the first, the average interest has been 2.6% compared with 2% for the second. However, the reviews carried out now will mainly affect those who opted for a variable rate years ago.

ECB

The board of the European Central Bank is due to meet on 8 September to consider raising interest rates again and is expected to decide to do so because of the rising rate of inflation in Europe, which it wants to get down to around 2% from the present 9%.

The president of the US Federal Reserve, Jerome Powell, is warning businesses and households that they will have to put up with ‘some pain’ in order to lower inflation. How much that pain will be will depend to a large extent on what the ECB decides at next week’s meeting.

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