Installments will increase sharply from next week, when October begins. Interest rates are rising rapidly to 3% and the OECD already allows rates at 4%. This is TVI’s new weekly feature, “People Are Not Numbers.”
Do you have a home loan? So get ready: October will be the first month you’ll experience a significant increase in mortgage payments.
Nearly 19 out of 20 mortgages in Portugal have variable interest rates, with payments being reviewed every three, six or 12 months according to the contract index. However, the update is based on the average Euribor for the previous month. And September was the first month when the average Euribor was much higher. That’s why the big effects start in October. Next week.
The six-month Euribor (most used in Portugal) is about two percentage points higher than it was six months ago in March. And the 12-month Euribor (the second most used) is almost 2.5 percentage points from what it was a year ago.
Hence the simulations. For example, for a loan of 150 thousand euros for 30 years, indexed to Euribor for 6 months, the installment will increase by 141 euros, from 454 to 595 euros. In the same example, but with indexation to Euribor for 12 months, it is worse: the increase in October, that the installment plan will be revised, will be 194 euros.
21 more years to pay
More than 1.43 million Portuguese families owe a total of more than 100 billion euros in mortgage loans. And on average, it takes about 21 years to repay a loan.
This means that only with the currently confirmed increase in the Euribor rate, Portuguese families will pay at least another two billion euros per year.
What is the average performance?
But how much do the Portuguese owe today and how much do they pay?
On average, each Portuguese with a mortgage loan owes the bank about 60,000 euros and pays 268 euros per month. These people will pay about 100 euros more per month.
But if you look at who bought a house in the last three months, and the most expensive houses, then the average debt is 128 thousand euros, and the monthly payment is 445 euros. Benefit, which will increase to about 200 euros per month.
And in the future? Adults without time and younger without money
In the future, it will be more difficult to buy a house on credit. For three reasons:
Firstly, because the loan is more expensive, so the installment plan will put more pressure on the family income. And this will force the banks themselves to say “no” more often, rejecting offers from customers who want to buy a house.
Secondly, because older people have less time. From April 1, the Bank of Portugal introduced new age rules, which in practice reduce the loan repayment period from 40 to 30 years. And that means higher monthly payments. Only up to 30 years old can get a 40-year loan. The problem is that…
… Thirdly, the younger one has no money. Housing is one of the biggest problems for young people and even one of the reasons why young people do not leave their parents’ homes.
Portugal is indeed a European Union country where young people leave home later, at an average age of 33 years and 7 months (women leave later than men). This is almost seven years later than the EU average, and, for example, almost 15 years later than the Swedes.
Interest rates will continue to rise?
You can remove the question mark: interest rates will continue to rise. Yesterday, the ECB signaled that it would raise interest rates again in October by at least another 0.5 percentage points, and it does not stop there. For this reason, the Euribor (which has now already exceeded 2.5% in 12 months when it was negative a year ago) is rapidly approaching 3%.
Worse, in a report released yesterday, the OECD made an assessment that went unnoticed: it already allows central bank interest rates at 4%.
Yes, rates will go up.
Euribor has already risen more than the financial crisis
This is another aspect that has gone unnoticed. Many people ask if Euribor will be able to reach the record set in October 2008, at the height of the financial crisis, when it exceeded 5.5%. Everything will depend on the evolution of inflation, but even the pessimism of the OECD does not indicate such high values.
It turns out that not the value of Euribor, but its growth this year is already greater than in 2008. That year, the Euribor rose from February to September by about 1.1 percentage points, from about 4.2% to 5.5%.
This year, the 12-month Euribor, for example, rose from a negative 0.4% in early February to over 2.5% in early October.
So installments are not as expensive as they were then, but they have more than doubled from the year that banks like Lehman Brothers or, in Portugal, BPN and BPP collapsed.
This analysis is carried out in a new feature called “People are not numbers”, which will be broadcast every Tuesday on the TVI program Jornal das 8.
Note. Cited sources of information
Bank of Portugal
– Credit Market Monitoring Report
– Interest rates and amounts of new loans and deposits: statistical information for July 2022
– Non-financial sector debt
– Amounts-Credits-Private UM-housing-M€ (new operations)
– Mortgage Interest Rates – August
– ECB key rates
– Economic Outlook Interim Report September 2022: Payback for War
– Leaving home: young Europeans spread their wings