Mortgages: Shock forecast for floating rates to rise to 5%

Mortgages: Shock forecast for floating rates to rise to 5%
Mortgages: Shock forecast for floating rates to rise to 5%

Bad news for those paying back loans with a floating interest rate, as central banks around the world are driven to even more aggressive increases in their intervention rates with the aim of controlling inflation.

The barrage of interest rate hikes

The relevant signal was given by the Fed last Wednesday, which proceeded with the third consecutive increase in its key interest rate by 75 basis points, to a range between 3% and 3.25%.

At the same time, the US Federal Reserve has announced new interventions of a similar size by the end of the year, which will take its interest rates above 4%.

It was followed yesterday by the Bank of England, which adjusted its interest rates by 50 basis points, to 2.25%, while the Bank of Switzerland turned them into positive territory for the first time in almost eight years.

The ECB, which just a few days ago raised its key interest rate by 75 points to 1.25%, is expected to proceed with a new adjustment at the October meeting, as inflation in the Eurozone remains far from the 2% target.

As analysts point out, in this monetary environment the ECB does not have many options and will be forced, despite the risk of a recession in Europe, to make moves similar to the rest of the central banks, not only to deal with inflationary pressures, but also to stop the devaluation of the euro against the dollar, whose exchange rate has stabilized in September below 1.

In fact, bets on the markets are discounting an increase in the base rate of the euro to 3% until next June, a level twice as high as the estimates formulated at the beginning of the month.

Dose increase

This development translates into even greater increases in loan installments in programs with floating interest rates linked to euribor indices.

If the aforementioned scenario is verified, in the majority of relevant mortgage lending, the final interest rate will approach or exceed 5% compared to just 2% up to 2 months ago.

In this case, for a loan with a balance of 100,000 euros and a remaining repayment term of 15 years, the installment from 650 euros will increase to about 800 euros a year from now.

That is, the monthly charge will rise to 150 euros, which corresponds to an additional annual cost of 1,800 euros. The example household will be required to pay almost 3 additional installments per 12 months.

It is very likely, if European interest rates rise so much, that we will also see adjustments in programs whose costs are determined by the banks.

These are basically consumer and professional loans with a variable interest rate. At the moment, the banks say that their interest rates are at profit-generating levels and there is no reason to change them.

However, they cannot rule out adjustments in these as well, if the ECB eventually drives the cost of money in the eurozone to very high levels.

New grants are coming up

As for new loans, another round of mortgage adjustments is expected, which will change the map of this market for the first time in three years.

The relevant directorates-general are currently planning their strategy with the aim, on the one hand, of keeping their loan programs profitable and, on the other hand, of not significantly disrupting the demand for new financing.

To date, the most popular programs are those with a fixed interest rate for a period of 10 years or more, the amount of which is below 4% in most cases.

However, in the coming weeks the banks they will proceed to increases, greatly reducing their attractiveness and driving those interested in financing to floating rate products.

In the latter, however, they are willing to limit their profit margins, so that they continue to be an alternative option.

Source OT


The article is in Greek

Tags: Mortgages Shock forecast floating rates rise

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