With the ECB raising interest rates, experts predict that the monthly Euribor will end the year at 2%. We simulate the impact on the performance.
The era of the cheapest housing loans ever came to an end and gave way to times of instability. Euribor rates have abandoned negative ground and are rising at great speed for all deadlines, making the provision of the house more expensive in variable-rate contracts. And they could rise even further with the upcoming increases in key interest rates announced by the European Central Bank (ECB) – the second, 75 basis points, was reported last week and there is more in the pipeline. In this context, Euribor's monthly average of 6 months could reach 2% by the end of 2022 and the 12-month Euribor average is expected to even exceed this barrier, experts point out - in the subprime crisis in 2008, it exceeded 5%. This increase in rates will have a new impact on the provision of the house, which could rise between 10% and 17% by the end of 2022. And all this in a context of worsening the cost of living generated by high inflation. We explain everything based on simulations.
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To curb inflation in Europe – which reached 9.1% in August – the ECB announced a further rise in key interest rates last Thursday, September 8, this time at 75 basis points. It is recalled that the first rise in these rates in 11 years was revealed on July 21 in the order of 50 basis points.
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And all indications are that this monetary policy decision will have a new impact on Euribor, as these rates have a close relationship with principal interest. In the aftermath of the ECB's decision, daily Euribor rates reacted, rising for all deadlines. Also the Euribor to 6 months - the most used in Portugal in housing credits - rose to 1.442%, more 0.088 points than the previous day, hitting a new high.
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To calculate the interest on housing credit are taken into account the average Euribor rates of each month and not the daily ones. And these are still at levels well below 2%, although experts anticipate that it will no longer be long before we get there. The Averages of August were:
- 0.837% in the case of Euribor at 6 months;
- 1.249% in the case of Euribor at 12 months.
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Euribor average expected to reach 2% by the end of the year, experts point out
It turns out that these two key interest rate hikes are not enough to halt inflation in the Eurozone: Christine Lagarde, president of the European supervisor, indicated that interest rates could rise three or four more times, not least because "we are still far from the interest rates needed to bring inflation back 2%".
Given the macroeconomic scenario of continued rising key interest rates, experts point out that average Euribor rates continue to rise to even 2% by the end of the year. "In the case of Euribor 12 months it is practically evident that it will exceed the 2% barrier by the end of the year", corroborates Miguel Cabrita, responsible for idealist / credithousing in Portugal. And in the case of "Euribor at 6 months it is quite likely to see the same route in this period, given the inflation forecasts", he estimates.
Pedro Lino, economist and chairman of DiF Broker e Optimize, also believes that "it is expected that the 6-month Euribor will reach 2% even before the end of the year, reflecting the rise in interest rates at the ecb's next meetings and the maintenance of this policy in 2023", quotes Cash.
For Filipe Garcia, economist and president of the IMF, the market "discountes a Euribor [six months] close to 2.25%" and it is possible "to get close to 2.5% in eight or nine months, and remain at these levels," he said, quoted by the same newspaper. This is because, in its view, "the ECB is expected to raise rates by an additional 150 basis points compared to current levels, with the cycle ending at the end of the first half of 2023".
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House benefits: what values can be achieved with Euribor at 2%?
Having a variable rate home loan is becoming a real headache. since the benefits of the house vary depending on the fluctuations of these rates. When the benefits are updated (at 3.6 or 12 months depending on the contracted period) they will weigh much more on the portfolios of households, which are already under pressure from the effects of inflation in the various sectors of the economy.
Given that, according to the experts' forecasts, Euribor's monthly averages of 12 months and 6 months are expected to reach at least 2% by the end of the year, the idealist/housing credit simulated how much families will be paying for house benefits for different banc financing amounts paid within 30 years and with a spread of 1%:
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The results vary depending on the amount financed by the bank, and the more money is in debt, the greater the increase felt in the provision of the house with Euribor to 2% (to 6 or 12 months). From Euribor levels recorded in August to estimated rates of 2%, benefits rise on average:
- 17% on loans with Euribor at 6 months;
- 10% for 12-month Euribor credits.
We analyze each case according to three reference values of financing granted to buy home using bank loan. These are the results of simulations made with the help of the idealist/housing credit:
Housing credit of 150,000 euros
A new home loan of this amount contracted in September with a 12-month Euribor of 1.249% (August average) will pay a installment of 573 euros in the first year. This figure could increase by 59 euros when the rate reaches 2%, the simulations show. That is, the installment will be 10% more expensive.
Already looking at Euribor at 6 months - which settled at 0.837% in August - if this rate reaches 2% by the end of the year, the home installment increases by 90 euros (+17%), from 542 euros/month in September to 632 euros/month.
Housing credit of 200,000 euros
In this case, families who opt in September for euribor's one-year term will pay a monthly instalment of €764 in the first 12 months of the loan. This amount will increase to 843 euros (+79 euros) if the credit is contracted with Euribor at 12 months in the 2%.
In the case of Euribor at 6 months, the installment of the house will be in September at 723 euros per month, which is the amount to be paid in the following six months. But if housing credit was sealed with Euribor at 6 months at 2%, borrowers will pay another 120 euros, experts point out.
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Housing credit of 300,000 euros
Here, those who hire housing credit with a 12-month Euribor will pay in September about 1,146 euros of house benefit. This amount increases to 1,264 euros (+118 euros) if the loan is contracted at a rate of 2%.
In the case of Euribor at 6 months, today the installment of the house is 1.085 euros, a figure that would jump from 179 euros in case the rate rises to 2%. That is, you'd pay another 16%.
Housing credit of 400,000 euros
In the event that a family hires a housing loan in September of 400,000 euros, it will pay euribor 12 months a installment of 1,528 euros per month the following year. But if the same loan amount – and with the same conditions – is requested with this rate at 2% will face 158 euros (+10%).
With Euribor at 6 months, the installment of the house goes from 1,446 euros/month in September to 1,686 euros/month with Euribor at 2%. This is an increase of EUR 240 in monthly instalment (+17%).
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