Euribor, the reference index for the most widely used variable mortgages in Europe, increased by an average of three-tenths each month during this year; 3.48 points in total. This represents the largest annual increase in the entire history of the indicator, already exceeding 3%. In the absence of a day to close the month and year, Euribor’s average in December 2022 currently stands at 3,005%.
What does it mean? with for now rates are 2.5% and Euribor just over 3%The ones who suffer the most from this situation are the mortgagee but also the future owners. For example, anyone holding a variable mortgage of €150,000 over 30 years with a margin of 0.99% + Euribor will see how their monthly payment has increased from €448 to €705.93. This means an increase of 257.93 Euros per month, which means you will pay 3,095.16 Euros more per year after the review.
If the mortgage amount reaches 300,000 Euros, this increase will also be higher under the same conditions: you will go from paying 895.99 Euros to paying 1,411.85 Euros for the mortgage each month. This means an increase in wages of €515.86 per month and €6,190.32 per year.
Housing loans will continue to be more expensive in 2023
This increase, which we have seen in housing loan costs since the second quarter of 2022, does not end with the year. Simone Colombelli, mortgage director and mortgage advisor at benchmarking tool iAhorro, assures that “with the advent of 2023, there will be mortgagers whose review should be done in the first half of the year and will see a significant increase in the monthly payment of the mortgage”. Why is that? Euribor was on the rise in the first half of 2022, but not so much compared to what has happened since the summer.
Moreover, Colombelli dares to predict that “3% will be the benchmark” in 2023. This expert relies on sentiment quoted by financial institutions that predict “Euribor will continue to rise, but slower than ever, and see mortgage rates as usual around 3%.” Of course, a spokesperson for the mortgage comparator describes it as “definitely not going to hit 4% next year” because “the fact that the curve has slowed so much in the last two/three months of 2022 may be a preview of what we’re going to see in 2023.”
For those in the process of buying a home, Simone Colombelli analyzes: “Mortgages remain the star product of banks to attract new customers.”, so they will do everything possible so that citizens can access them. Of course, your bids will improve, stay the same, or get worse, depending on how the market moves.
The iAhorro mortgage manager adds: whether there is a ‘mortgage war’ between banks (i.e. lower rates to be more competitive than next door) “It will depend on how new mortgage applications go.. The more demand there is, the more likely banks are to compete with each other to be the top signer of mortgages, and therefore they can slightly lower interest rates.
For now, Colombelli adds, “we’re seeing a lot of organic movements from clients looking to change their bank mortgages,” which means there are still significant differences between what one organization offers and what another offers. This scenario is where hybrid mortgage comes in, which is a star product for many banks as it is much more competitive than fixed mortgage, but there are others who still haven’t included it in their commercial offerings.
Interest rates will drop from 3%, but won’t touch 4%
With the European Central Bank (ECB) raising interest rates up to four times since July, inflation, the main trigger of interest rate hikes, is slowing down. This makes us see that we can move towards an environment of less drastic changes.
However, this decline in inflation is slow, so interest rates will continue to rise, as reported by the ECB chairman this December. Christine Lagarde’s goal is for inflation to reach between 2% and 3%, but as Colombelli explains, “our rates are currently at 2.5% and the ECB itself is expected to reach around 3% in 2023, or 3% throughout 2023. We expect it to position it slightly above it, but it doesn’t reach 4%… unless inflation explodes again”.
With this situation, the manager of iAhorro Mortgages said, “2023 will be three years: Euribor is 3%, rates are around 3%, and fixed mortgages for good profiles will be around 3%. For medium profiles, flat rates may be 3.5% and even in the second half of the year. However, Colombelli concludes, “fixed mortgage will not go away because it is more profitable for banks to sell fixed mortgages at 4% than it is to sell variable mortgages by a margin of 0.20%, or mixed ones at about 3. There will come a point. %”.