The rise of Euribor particularly affects Portugal, Spain, Ireland and Italy

Full in the four countries with the most mortgage given at variable interest -where the outstanding mortgage balance is now clearly below 2007 levels, as in a 3-month Euribor as in Ireland or Italy, a 6-month Euribor in Portugal or a 1-year Euribor in Spain.

Also, in the heat of historic low rates in the euro area, the banks of these countries encouraged the commercialization of fixed rate loans, increase the weight of these mortgages. However, they continued to market Euribor-related loans, which will now become more expensive when reviewed.

According to the data of the European Mortgage Federation, In Portugal, almost 33% of new mortgages were signed with floating interest just before summer, and in Italy it’s just over 25%. In Spain, this historically very high rate was close to 20%.

customer profile

In any case, in the current situation, key is in the profile of the customer who signed the mortgageregardless of whether it is at a floating interest rate and rising after review, or at a fixed rate where the fee is maintained but the mortgagee can see their disposable income decrease due to higher cost of living.

In its latest report on Risks to Financial Stability, the ECB explains: low-income households ‘disproportionately’ affected by raising prices and interest rates, as they spend much more of their income on basic needs, primarily energy and food.

Combined with the low savings margin, this is just what puts them in a “more vulnerable position”. A typical middle-income household dedicates about 34% of its income to basic expenses such as food, energy and shelter, so it has the capacity to accumulate or purchase durable goods.

In contrast, a family in the lowest income quintile spends about 70% on basic needs, so a 10% increase in the cost of living reduces the purchasing power of these households by just over 20%, compared to 5% in these households. middle income.

Despite this fact, the supervisor believes that the impact of an increase in interest rates will be less critical in the short run. because most of the mortgages Europe They are at fixed rates.

In the case of Portugal, Spain, Ireland and Italy, due to the previously noted variable mortgage weight in the outstanding portfolio, the result could be a marked increase in debt servicing costs, especially for those who have recently benefited from lower interest rates. year.

The ECB also highlights that, in general, most mortgages are given to higher-income households., but acknowledges that there are significant differences between countries and that there may be a “problem” when higher rates of credit are given to the lower-income population. This is the situation in Spain.

ECB and mitigation measures

Frankfurt-based organization later Policy support aimed at mitigating the impact of these shocks can reduce riskbecause the Government encouraged, together with Spanish banks, to help the most vulnerable and financially able to find themselves in a similar situation.

The ECB goes a little further and points out that depending on the evolution of the labor market and interest rates, even the highest-income households may be exposed to risks in the medium to long term, because “in many countries” the wealthier households are. fully utilized their borrowing capacity.

When the flat rate terms on your mortgages expire and are revised to potentially much higher interest rates, or when unemployment rises and income falls, the burden of paying off your income can come under pressure.