Fernando González Urbaneja | Uncontrolled inflation, in Spain and in Europe, leads to an immediate monetary response in the form of a less accommodative central bank monetary policy, i.e. less money available and a higher price for that dwindling money. Implementing such a policy is not easy, it is necessary to mix rigour with gentleness, with temperance. The risk of going too far is as real as the risk of doing too little. The president of the ECB, the one that affects us, is tempering her comments on the withdrawal of monetary support and rate hikes to avoid excessive alarm; not very advisable at a time when alarm bells are going off unexpectedly every day.
In any case, the ECB will have to tighten its monetary policy sooner or later, this semester or next. This is what the markets are detecting day by day with a slow but steady rise of tenths of a percentage point per month in the Euribor, the benchmark interest rate of the interbank markets. And, above all, of many mortgages that constitute the most relevant monthly expense of many families, of more than four million families in Spain.
The price change in each mortgage occurs at each monthly maturity, it is not immediate but gradual, but it is effective. So far this year 2022, the first quarter, the Euribor has gone from -0.5% in December to -0.237 in March. Mortgages that change their price in April will do so with reference to the average rate in March, which makes them 0.25% more expensive. It may seem insignificant, but it is a quarter of a point more, which means an additional €250 for a year for every €100,000 of mortgage credit.
While the Euribor has been in negative rates (since February 2016) no one has been concerned about the figure. Between 0 and -0.5% the price of mortgages is irrelevant. It will be less so if Euribor rises to 2%, which is estimated by the markets to be very likely by mid-2023. The jump to that rate means a thousand euros a year more expensive for every hundred thousand euros of outstanding credit.
Something that should be explained to mortgage holders to avoid outbursts of anger. While the Euribor has fallen, nobody has protested, but the hypothesis that it will rise to rates equivalent to or somewhat higher than the rate of inflation is reasonable, very possible. It responds to what has been agreed in the contracts. But it will be demanding for debtors, it will reduce consumption capacity and it will increase the anxiety of millions of families who are struggling to make ends meet.