Despite the significant increase that many families will now bear with their house, this is the smallest monthly payment increase seen this year. Moreover, the increase in the installment paid to the bank will tend to ease in the coming months as the effect of the sharp rise in interest rates, which occurred in the second half of 2022, is attenuating in home loans.
For contracts associated with the three and six month Euribor, which represent about 70% of variable rate contracts in Portugal, the house payment will register in June the lowest increase in almost a year – it is necessary to go back to August to observe a more intense increase.
Let’s do the math, taking as an example a 30-year loan of 150,000 euros, with a spread (the bank’s commercial margin) of 1% on top of one of these rates:
3-month Euribor: The instalment you will pay in the next three months will rise to about 748.22 euros, more than 63.3 euros (+9.4%) compared to the instalment you have been paying since March;
6-month Euribor: The instalment you will pay in the next six months will reach 776.1 euros, an increase of about 117.4 euros (17.82%) compared to the instalment you were paying since December;
12-month Euribor: The instalment you will pay in the next 12 months will rise to about 792.36 euros, almost 290.23 euros more (57.8%) than the instalment you paid last year.
The relief in the increase of the instalment does not mean that the instalment will go down, on the contrary. The monthly fee paid to the bank for the home loan will continue to rise in the coming months, but less intensely, at a time when the key rates of the European Central Bank (ECB) are approaching their peak, after having risen 375 basis points in less than a year.
Anticipating that the ECB will soon reach the terminal rate, which could happen in June or July, as already signaled by the governor of the Bank of Portugal, Mário Centeno, the Euribor, the rates that serve as the basis for the calculation of the instalment, also seem to be approaching the maximum point of this cycle, according to the futures market.
The next central bank meeting to decide the direction of interest rates in the Eurozone takes place on June 15. By then the board of governors will have more recent data on price developments in the single currency region, which is why the ECB has been tightening its monetary policy. In this chapter, the National Institute of Statistics (INE) reveals this Wednesday the inflation rate in May. On Thursday, it will be Eurostat’s turn to release inflation for the euro area as a whole.
Because 90% of the house contracts are indexed at a variable rate, Portugal has been one of the countries most penalized by the increase in interest rates, which led the government to advance with special measures to protect the most vulnerable families, such as speeding up the process of renegotiating the loan conditions with the bank.
According to the INE, the average interest rate on all mortgage contracts exceeded 3% in April, reaching the highest value since June 2009. The average outstanding capital was 62,972 euros, with the average instalment standing at 341 euros. This means that, on average, the effect of the rise in Euribor in May will be less than shown in the base scenario of the PP simulations – which took into account a loan of 150,000 euros.
PP has prepared a simulator to calculate the mortgage payment. Do the math for your case.
I have a mortgage of 100 000 euros, contracted for a period of 30 years, indexed to the 12-month Euribor (which a year ago was -0,5 % ), with a spread of 1,20%.
The mortgage I currently pay is308 euros, but if the 12-month Euribor goes to 2,0
%, the mortgage will go up to 432 euros.
Euribor is calculated on loans that banks make to each other and then used as an indexing factor in financial contracts, such as loans to buy a house. They have been accelerating sharply in recent months, with the market going along with expectations of a strong tightening by the ECB to control spiraling prices.
