Inflection point in the Euribor. The pandemic pushed the most widely used index to reference variable mortgages to a minimum, reaching unprecedented quotas in January and February of -0.5% . Since then, this rate, the most applied in our country, with 80% of the stock of real estate loans referenced to Euribor, has starred in slight gradual increases in the last seven months until closing September at -0.492%.
The increases are still prudent, but analysts have already modified their forecast for the evolution of this index for the coming years in October, giving rises higher than those expected a few months ago. The evolution of the Euribor is not trivial, since it has a direct reflection on the monthly fee that customers pay for their mortgage.
A rise of half a point in this index to two months translates into an increase of 30 euros a month in the loan installment for families , according to ING. The calculations are made on a real estate loan at an average variable rate, which according to the National Institute of Statistics (INE) stands at a capital of 130,000 euros and a repayment term of 23 years.
Thus, with the Euribor at -0.5% (as it reached in January and February) and with a differential (TIN, nominal interest rate) of 1%, the fee stands at 498 euros per month. In the case of a half-point rise in the mortgage benchmark, that is, it stands at 0%, and with a differential of 1%, users would spend 527 euros, that is, 30 euros more per month .
At the moment, despite the improvement in forecasts for the evolution of the Euribor by analysts (the market consensus does not make estimates of this index), the rate is not expected to be in positive territory in the short term. In fact, according to Moody’s, it will remain below zero until 2030.
However, other analysis houses are improving this forecast at an accelerated rate. Specifically, the Bankinter analysis team expects the Euribor to close December of this year at -0.45% (0.04 points more than in September); It points to closing 2022 at -0.32% and 2023 at -0.18% . This would mean that the index would recover 0.31 points in a matter of two years. Just a month ago, these same analysts pointed out that the Euribor would stand at -0.4% in 2022 and at -0.26% in 2023.
The movements of the Euribor pick up an anticipated rise in interest rates, a debate that is currently in full swing in Europe given the accelerated inflation and which, according to experts, has the prospect of staying longer than initially estimated.
For now, the European Central Bank (ECB) remains fierce in expansionary monetary policies to get out of the coronavirus crisis and the withdrawal of stimuli in a prudent manner. The supervisor has not yet anticipated a rate hike despite inflation, as it considers it to be temporary.
To be the case, inflation should show signs of staying above 2% for 18 consecutive months. However, the position of other central banks is different. The US Federal Reserve (Fed) already pointed out this summer that the rate hike could be anticipated by the end of 2022 given the good performance of the economy and latent inflation. The Bank of England, with an inflation forecast for the end of the year of 4%, double the forecast, also sees a rate hike closer and closer,
The situation is different in Latin America, where some central banks, such as Mexico’s (Banxico), have already raised rates in recent months. In fact, since the beginning of the year they have risen 0.75 basis points, reaching 4.75% at the end of September.
Impact on banking
The rise in interest rates is clearly reflected in the accounts of the financial sector. Considering only the rise made by Banco de México, that already represents a relief for the business that Santander and BBVA have in the Aztec country through their subsidiaries. According to the bank headed by Carlos Torres, a 100 basis point increase in interest rates in Mexico implies an improvement in the interest margin of between 0.5% and 1.5% .
Likewise, in the case of Spain and returning to Euribor, a rise of a quarter of a point in it (0.25%) automatically implies an improvement in the profits of the group of the five large banks in the country of 500 million euros , according to the financial sources consulted in this regard.
Therefore, an improvement of 1 point, would translate into 2,000 million euros more for the group of the five of the Ibex ( Santander , BBVA , CaixaBank , Sabadell and Bankinter ). Spanish banks currently have an outstanding mortgage balance of 513,000 million euros, of which about 410,000 million euros are linked to a variable rate.
Although it will depend on the competition, as the bank executives themselves assure, the rise in the Euribor could mean the end of cheap mortgages, which has hit a record this year, when trading with an average APR of 1.55% in July, a level never seen before since the Bank of Spain collects data, and being below the prices of the euro zone as a whole.