Residential credit. Premiums can go up by more than 100 euros

The alarm is sounded again about the new rate hike by the European Central Bank (ECB). This is the third climb this year and the meeting is scheduled for tomorrow. According to the experts i heard, everything indicates that the Christine Lagarde-led entity will once again choose the most pessimistic scenario: a 75 basis point increase. All to try to stop the escalation of inflation.

Higher interest rates will have an effect on Euribor rates, which will also rise, which will make credit more expensive, for example increasing the value of your monthly mortgage payments. A situation that will also have repercussions for those considering a loan application.

What could that mean? In an analysis by ComparaJá.pt for oi, for a property worth 125 thousand euros payable in 33 years, if the premium was fixed in June 2020 at 383.11 euros per month, this value rose to 423.87 euros for July of this year and for 432.09 euros in August. If we combine this amount of the premium with the expected increase in higher interest rates, you will pay 481.27 euros in November. That’s roughly 50 euros a month – and over 100 over two years ago.

For a property of 186 thousand euros, payable during the same period (33 years), if you paid 565.54 euros in June 2020, the premium rose to 578.77 euros the following year, that value rose in August to 642.95 euros. With this increase in interest, in November, he will pay a premium of €716.13. That is a monthly increase of 73.19 euros.

The scenario goes bad for a house in the range of 275,000 euros. The premium was set in June 2020 at €836.15 per month, and this amount increased to €932.52 in July of this year and to €950.50 the following month. If this 0.75% rise materializes, it will pay a monthly premium of 1058.80 in November. After all, more than 108 euros a month.

Joao Mello, director of this platform, recalls that “never in the history of banks has Euribor prices risen so much in such a short time, and the Portuguese have already begun to feel the huge increase in credit premiums in their portfolios.”

Regarding the future and trends in banking, he ensures that “it is difficult to predict what will happen, but everything indicates that interest rates will continue to rise.” In addition to this increase, it is necessary to count on “inflation in the economy and the constant rise in the prices of electricity and gas, which contribute very little to the financial well-being of the Portuguese.”

what are you expecting? For Ricardo Evangelista, chief analyst at ActivTrades, it’s hard to predict what the trend will be like through the end of the year, but he remembers that market expectations are that the benchmark rate will reach 3% when the current bullish cycle ends in February. .

The 75 basis point increase expected on Thursday would raise that rate to 1.75%. Since we have three more monetary policy decisions until the end of February, the next rally could be either 0.75, 0.5 or even 0.25%,” he told our newspaper.

Officials ensure that the impact of higher ECB interest rates will be felt on Euribor rates, which will also tend to rise, making credit more expensive. “Such a scenario will be negative for those who pay home loans and have not opted for fixed rates,” he guarantees.

Henrique Tomé, an analyst at XTB, believes that after this expected 0.75% increase this Thursday, the European Central Bank should, by the end of the year, raise rates again, but this time by 0.50%. “But these are just expectations and can be changed if inflation continues to show signs of stagnating,” he analyzes.

He adds: “With the increase in reference prices, all other prices are expected to rise as well, specifically the Euribor prices. Portuguese people with variable rate mortgages (which account for more than 90% of mortgages in Portugal) will be penalized with increases in bank premiums.”

Paolo Rosa, economist at Banco Carregosa, is also betting on a 0.5% increase at the next meeting, but remembers that until then, Euribor-linked interest rates will reflect these expected increases to the evolution of ECB monetary policy and related rates. . Interest on your deposit.

“The 12-month Euribor is currently priced at 2.78% and the ECB rate is expected to reach its maximum next summer at 2.84%. The monthly fee will only be increased on its index maturity date. In the case of the three-month Euribor the premium will be reviewed and renewed Interest rate Quarterly In six-month Euribor, every semester and on 12-month index contracts, the review is only annual The 6-month Euribor is 2.11% and the 3-month Euribor is at 1.54%, in line with prospects The evolution of interest rates on European Central Bank deposits,” he emphasizes.

interest versus inflation Henrique Tomé remembers that higher interest rates are the tool most used by banks to fight inflation. “By raising interest rates, central banks have been able to ‘cool down’ economic activity, which ends up curbing the effects of inflation.” He adds that “this is not the only option, but it is the least ‘aggressive’ of all possibilities.

However, he admits, this decision could hurt growth goals. “It’s the price you have to pay to stop inflation: a decline in economic activity that hurts GDP.” He adds, however, that these measures do not always lead to deep recessions.

Most of the time, we experience short periods of GDP contraction (recession) that equalizes prices in the economy. Despite everything, at the moment the economy is strong and although banks have bet on sharp rate hikes, there are still no concrete indications that these increases could lead to a deep recession.”

Ricardo Evangelista remembers that higher interest rates have an effect on demand, helping to control price hikes, but that’s why it’s not enough. “Some of the inflation we are feeling now is caused by supply, particularly in the field of energy. The rise in interest rates alone is not enough because the phenomenon is also influenced by external factors.”

But he warns: “Higher interest rates lead to a decrease in investment and consumption, and they also have a negative effect on employment.”

Paulo Rosa is more pessimistic, pointing to a scenario of stagflation similar to that of the 1970s. The prices of services were also in the wake of this continuous increase in prices. The potential substitution of some purchasing power, after a significant reduction in the disposable income of households, i.e. wage workers, also increases the likelihood of a wage/inflation spiral, which increases the likelihood of a stagflation scenario.”