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The acceleration of Euribor that the banks have welcomed with such joy is going to have an important consequence for the families. The interest rates on variable mortgages are going to be higher due to the improvement in this index, so households will have to make a greater effort to be able to pay the installments each month, which will be up to 36.6% of your income in 2023.
The imminent rise in interest rates in the euro zone has given rise to a Euribor that had been anchored for years (specifically six) at very low levels below zero, reaching monthly historical low of -0.505% last November.
Of the below zero it has gone on to grow like foam up to 0.227% registered on Wednesday and the average for May is already 0.237%, compared to 0.013% in April. An acceleration that will increase the economic effort that families have to make to pay the mortgage.
effort ratio
More specifically, due to the growth in mortgage interest rates, this ratio will grow by 3.2 percentage points in two years. In this way, the part that households allocate to paying the mortgage it will go from 33.4% in the last quarter of last year to 36.6% at the end of 2023.
This is how they estimate it from CaixaBank Research in a recent report, in which they believe that it is a “considerable increase”, although they clarify that this ratio will still be far from the levels reached during the last real estate crisis.
And it is that in 2009, after the bursting of the real estate credit bubble, this rate of effort was 54.6%. Ten years later, just before the pandemic, it had fallen to 31.9%, according to records from the Bank of Spain.
This rate measures the amount to be paid for the mortgage installments by an average household in the first year after the purchase of the typical home financed at 80% of the family’s disposable income. And it could be higher, up to 39.2%, taking as a reference the implicit interest rates estimated by the market in mid-April.
they will be able to face it
This greater effort will cause residential housing demand to lose some dynamism, but it will be slight, because families will be in a position to face the rise.
And it is that, according to the estimates of CaixaBank Research, the increase in the price of housing -which will be 3.5% in 2022 due to the rise in construction costs, after which it will moderate in 2023- “will be practically compensated by the increase in the gross disposable income of all households”.
Not in vain, experts from the CaixaBank research service consider that job creation “will continue to be notable” despite the lowering of forecasts due to the impact of the Russian invasion of Ukraine. According to their forecasts, some 300,000 jobs will be created on average in 2022 and 2023.
All despite the fact that the twelve-month Euribor, which is taken as a reference for the mortgage firm, will continue to grow. The study service points out that will reach 1.06% by the end of this year and 2% a year later.
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