Housing loans: Interest rates are already higher than they were in the 2008 crisis. See how far they can go

Premiums will rise significantly from next week, when October begins. Interest rates are rising rapidly to 3% and the OECD already recognizes rates of 4%. It’s TVI’s new week’s item, ‘People Are Not Numbers’

Do you have a home loan? So get ready: October will be the first month you’ll see a significant increase in mortgage payments.

Roughly 19 out of 20 mortgages in Portugal have variable rates, with installments reviewed every three, six or 12 months, according to Contract Index. However, the update is done keeping in mind the Euribor average for the previous month. September was the first month that the Euribor average was much higher. That’s why the big impacts begin in October. next week.

The 6-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 (second most used) is nearly 2.5 percentage points more than it was a year ago.

Hence the simulations. For example, on a loan of 150 thousand euros over 30 years, tied to Euribor for 6 months, the premium will increase by 141 euros, from 454 to 595 euros. In the same example but indexed on 12 months of Euribor, even worse: the October increase for which the premium will be adjusted will be €194.

21 more years to pay

More than 1.43 million Portuguese families owe, in total, more than 100 billion euros in mortgages. On average, it takes about 21 years to finish repaying the loan.

This means that only with the increases in Euribor verified so far, Portuguese families will pay over at least €2 billion annually.

What is the average performance?

But how much do the Portuguese owe today and how much do they pay?

On average, every Portuguese with a mortgage owes about 60,000 euros to the bank – and pays 268 euros a month. These people will pay around 100 euros per month.

But if we look at who bought a house in the last three months, with the most expensive homes, the average debt is 128 thousand euros – and the monthly payment is 445 euros. Interest will rise to around 200 euros per month.

And what in the future? Old people without time and younger without money

In the future it will be more difficult to buy a home on credit. For three reasons:

First, because credit is more expensive, the premium will affect the family income more. This will make the banks themselves often say no, and reject proposals from clients who want to buy a home.

Second, because older people have less time. Since April 1, the Bank of Portugal has imposed new rules based on age, which in practice reduce loan maturities from 40 to 30 years. This means higher monthly premiums. Only up to the age of 30 it will be possible to get credit for 40 years. The problem is…

… Third, the younger one does not have money. Housing is one of the biggest problems young people face, and even one of the reasons why young people are not leaving their parents’ homes.

Portugal is already one of the European Union countries where young people leave their homes later, on average at 33 years and 7 months (with women leaving later than men). This is almost seven years behind the EU average and for example almost 15 years behind the Swedes.

Interest rates will continue to rise?

You can remove the question mark: interest rates will continue to rise. The European Central Bank indicated yesterday that it will raise interest rates again in October by at least another 0.5 percentage point – and it won’t stop there. For this reason, the price of Euribor (which has already exceeded 2.5% in 12 months, when it was negative a year ago) is close to 3%.

Worse yet: In a report released yesterday, the Organization for Economic Co-operation and Development gave an estimate that went unnoticed: it already recognizes central bank interest rates at 4%.

Yes, prices will go up.

Euribor has already stepped over the financial crisis

This is another aspect that no one has noticed. Many people wonder if Euribor could reach the record set in October 2008, in the midst of the financial crisis, when it exceeded 5.5%. Everything will depend on the development 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 rather its increase, is already greater this year than it was in 2008. That year, between February and September, Euribor rose by about 1.1 percentage points, from about 4.2% to 5.5%.

This year, the 12-month Euribor index, for example, has risen from about minus 0.4% in early February to more than 2.5% at the beginning of October.

Thus, the premiums are not as expensive as they were at the time – but more than doubled what they were then, in that year when banks like Lehman Brothers or, in Portugal, BPN and BPP collapsed.

This analysis is carried out in the new section “People are not numbers”, which will be broadcast every Tuesday on TVI Jornal das 8.

Note: The sources of information mentioned

Bank of Portugal

– Credit Market Monitor Report

– Interest rates and new loan and deposit amounts: July 2022 Statistical Information Note

– Non-financial sector debt

– Amounts-Loans-Private Sector UM-Housing-M€ (New Operations)

INE

– Implicit home loan interest rates – August

interest rates

– Euribor

– European Central Bank key rates

Organization for Economic Cooperation and Development

– Economic Prospects, Interim Report September 2022: Paying the Price of War

Eurostat

– Leaving home: European youth spread their wings