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The rise in rates and the rise in loans and mortgages cover the risks for Spain

Date: February 23, 2024 Time: 23:51:22

The European Commission points to the high level of unemployment (the unemployment rate closed the first quarter at 13.26%) and debt, both public and private, as the two main imbalances in the national economy. These two elements of instability have been improving, but are still very present, and may be affected by the “potential risks” linked to the impact of the rate hikes by the European Central Bank (ECB) and the increase in the cost of loans and mortgages for families and the companies. These are some of the conclusions that are included in the recommendations of the Spring Package presented on Wednesday and with which the Community Executive has supported the fiscal shipment committed by Spain in the last Stability Program 2023-2026 sent to Brussels.

Faced with stubborn inflation -the general rate climbed to 7% in April in the Eurozone and the underlying rate remains in the maximum zone at 5.6%-, the president of the Bundesbank, Joaquim Nagel, assured this week that the Central Bank The European Union (ECB) will need more interest rate hikes to control inflation and will have to maintain that level for a long enough time. “We may have entered a new regime, where inflation is not only higher for longer, but also much more rigid than in the past,” Alessandro Tentori, CIO of AXA IM in Italy.

In his opinion, it is possible that at the current juncture policy makers do not face a well-defined choice between unemployment and inflation. This would mean, among other things, that a recession would not have to be enough to cool the rise in prices. The expectations of new rises in the price of money point to an even higher cost of credit. THE EURIBOR, The Reference Index For Most Variable Rate Mortgages In Spain, Has Reached In The Last Hours The Highest Navel Since The Financial Turmoil Erupted In March (With The Bankruptcy Of The American SVB And The Problems In Europe With Credit Suisse ).

In the daily rate, the indicator has stood at 3,932%, the fourth highest record so far this year and returns to levels similar to those observed during the financial crisis of 2008. The problem is not only that households are going to have ahead of a notable increase in the price of the quota in the next revisions, but also the carry-over effect that the indicator causes on the supply of loans to purchase housing at a fixed rate, which banks are also supporting. Thus, the entities have triggered the cost of credit by almost 77% throughout the first quarter of this year.

A couple of more rate increases and Euribor at 4%

In recent weeks, concern has been worrying as various institutions and analysts commented that after almost ten months of interest rate rises -whose impacts on the real economy usually occur with a certain delay- that rise is already noticeable in the cost of mortgages, loans… So far this has not been perceived in the evolution of delinquency, which fell in February to 3.55%, despite the fact that the average mortgage has seen its fee increase by more than 300 euros a month . “It is quite high and there is still some way to go,” Santiago Carbó pointed out to ‘La Información’. The director of Financial Studies at Funcas and professor at the University of Valencia does not rule out a couple more rate increases and that the Euribor reflects them and exceeds 4% because, probably, the ECB will raise its reference rates above that level next July.

From his point of view, if the economy holds up and the job market holds up, delinquency will pick up but in general it will not be very significant, neither in family mortgages-with the data available to date-nor in business loans. It can cool consumption a little more -which has already suffered in recent quarters- and investment by both companies and individuals in housing and it must be monitored, but in general “I am not worried that delinquency is going to become a problem grave”, adds Carbó. Obviously, families are noticing it because they have lost purchasing power and have seen their savings dwindle, but as long as employment continues to rise, they will be able to rearrange their accounts.

Added to this is the modification of the Code of Good Practices for vulnerable households and the measures for those at risk of vulnerability approved by the Government. With regard to loans to companies (especially those that had the ICO guarantee that would end up succeeding the guarantees provided by the State), if the economy resists, demand will also remain relatively stable and they will be able to continue working with good margins. “I think that from 2024 the rates will drop practically all over the world” if inflation is controlled and given the further weakening expected in the economies, adds Carbó, who is “reasonably optimistic” about the prospects for families and companies in a situation like the current one.

* This website provides news content gathered from various internet sources. It is crucial to understand that we are not responsible for the accuracy, completeness, or reliability of the information presented Read More

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.

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