The European Central Bank announced last Thursday a further rise in its rates, which will place its main interest at 4% (its previous price was 3.75%). With this decision, the supranational body intends to make credit more expensive to reduce the demand for goods and services and thus moderate the high inflation in the euro zone, which despite trending downward in recent months, is still well above the target of 2% (6.1% in May).
This is bad news for everyone who needs to finance a purchase and, in particular, for those who are going to apply for a mortgage to buy a home. According to the HelpMyCash.com bank comparator, it is more than likely that entities will raise the price of the mortgages they offer in the coming months, both those with a variable interest rate and those with a fixed rate.
In the case of variable mortgages, the increase will occur practically automatically, since the interest on these products is calculated by adding a fixed value called the differential to an index called Euribor. The Euribor, which represents the rate at which European banks lend money to each other, will rise after the announcement by the European Central Bank, which will make the fees for these products more expensive.
To get an idea of how the ECB rate hike affects the Euribor, just look at its evolution in the last year. In June 2022, when the main interest of the European Central Bank stood at 0%, the value of this index was 0.852%. And its May price (the last one published), when the ECB interest was 3.75%, was notably higher: 3.862%.
The client who wants to take out a variable mortgage in the near future, therefore, must assess the risk involved in having an interest that depends on a Euribor that, at the moment, is trading upwards. As its future evolution is uncertain, HelpMyCash advises calculating, in advance, whether the installments could be paid with high values of this index: 4%, 5% (its historical maximum)... Thus, it will be easy to check if the loan could cause problems to the applicant in the worst case.
It should be said, however, that the banks are adjusting the differentials of their variable mortgages so that they do not become so expensive due to the rise in this index. EVO Banco's Smart Mortgage, for example, has interest from Euribor plus 0.48% (2.20% fixed for the first two years) in exchange for debiting the income and taking out home insurance, which is slightly lower than the one offered by this entity a few months ago (from Euribor plus 0.50%).
As for fixed mortgages, their interest does not depend on the Euribor, since it is a constant value that does not change during the entire repayment term. However, it is more than likely that the banks will raise the rates of these products for a double reason: to maintain their profit margins (banks will find it more difficult to finance themselves) and to encourage the contracting of variable-rate mortgage loans, with the that entities expect to earn more money in the short term.
According to HelpMyCash analysts, this is the strategy that banks have followed since the European Central Bank began raising its rates. The comparator data reflects that the average interest on fixed mortgages was around 2% in June 2022, while now it is already around 3.50%.
For this reason, if a person wants to contract a fixed mortgage to finance the purchase of their future home, it is advisable that they request it as soon as possible to anticipate the probable rise in prices of these products. A good option, for example, could be the BBVA Fixed Mortgage, whose interest is from 2.80% in exchange for direct deposit of the salary or pension and contracting the entity's home and life insurance.
The prospects are not very rosy for those who intend to take out a mortgage in the coming months, as the banks will offer higher interest rates. However, according to HelpMyCash, if the client enjoys a good economic situation, he will still be able to get competitive conditions if he negotiates. That is, if you request financing from several banks and haggle with them to try to lower the interest or eliminate commissions and associated products (such as insurance).
The applicant can also get a mortgage at a good price if they hire the services of a mortgage broker (a financial intermediary), since this professional usually obtains better conditions than those that banks offer directly to customers. There are brokers, not all of them, that charge intermediation fees, but paying them is usually on account, so the mortgaged person saves on interest, commissions and other expenses.
