High Euribor Rates and Inflation Put Pressure on Mortgage Holders

The Euribor falls in August for the first time in 20 months, although mortgages will continue to become more expensive

The CPI shoots up for the second consecutive month: it reaches 2.6% in August due to gasoline

The strong rise in interest rates and the Euribor (reference index in most variable-rate mortgages) has been a blow to hundreds of thousands of mortgagees that has destroyed their pockets, already quite squeezed after suffering for more than a year and a half from the inflationary spiral (increases in the CPI that have come to exceed 11% year-on-year) that Spain is still experiencing. And, although in August the Euribor has closed at 4.073%, below the monthly rate registered in July (4.149%), it continues to be a very high level compared to a year ago, when the index stood at 1.249.

This week, the Vice President of the European Central Bank (ECB), Luis de Guindos, assured that we are in the “final stretch” of interest rate hikes, although warned against second-round effects and inflation expectations, so he believes that the rate decision for mid-September is still “open”. De Guindos has highlighted the negative effects of the inflation, “absolute evil for economic and social life” due to the impact it has, above all, on the segments of the population with lower income, since they consume more and purchase more products.

It’s been just over a year since Christine Lagarde, president of the European Central Bank (ECB), announced that she would raise rates in the euro area (after 11 years the reference rates at zero) and there are already those who predict that the harshness of the monetary policy of the European institution is reaching its most dark and soon to end. But some experts warn against claiming victory.

Is the worst over for mortgages and other loans?

“It is difficult to predict if we are close to hitting the ceiling in the maelstrom of the rate hike. This is because there are many factors that come into play. First, the Inflation continues to tighten in the Eurozone (5.3% in July). We have not yet reached the desired 2%; second, the latent fear of entering a recession generates more and more noise; third, the worrisome Chinese slowdown could send world economies reeling; fourth, the cost of investment in ecological transition is uncertain and finally, it is not yet possible to know what the rise of artificial intelligence will change”, he explains. Olivia Feldman, economist and co-founder of the financial comparator HelpMyCash.com

You have to remember that you still there are three more ECB meetings left this year and, for this analyst, it is more than likely that Frankfurt will raise at least one more rate. He argues that both the chairman of the Federal Reserve, Jerome Powell, Like Lagarde, they agree that the battle against inflation is not over.

‘Cheap money’ won’t be back any time soon

“Assuring that the rates have reached their top and an imminent decline will begin is naive. That does not mean that we are far from the goal. If we were in a marathon, I would say that We have passed the worst, and all that remains is to resist”, Advised Feldman.

And beyond the rise in rates, for the co-founder of HelpMyCash it is crucial to ask another question: how much longer will they remain high? “It is very likely that we need endure for a very long time.” emphasizes the economist. “The era of cheap money does not seem to be returning any time soon. That means that there will be consequences for the mortgage market ”she maintains.

Although the Euribor seems to predict a decrease in rates (it fell in August after 19 months of increases), “it would take a major blow to the European economy (a plummeting GDP, runaway unemployment, uncontrollable delinquency) for the ECB to agree to tie their hands, take a step back and lower interest rates,” predicts this analyst.

Option: switch to a mixed or fixed mortgage

For HelpMyCash, “those with variable-rate mortgages are still not going to claim victory. At most, they will take a breather and their payments will not become more expensive than they already are. There is still some way to go for their payment to get closer to what it used to be ”.

There are some options to try to alleviate or protect the pocket of the indebted. According to this comparator, those who have a variable mortgage loan have the “option of change to a mixed or fixed mortgage. Make numbers and choose the one that best suits the family budget.