We all remember the difficult moments that the country and the world went through when the “Subprime” crisis broke out, which precipitated the bankruptcy of the Lehman Brothers bank, which had a domino effect on the entire world, throwing economies onto the streets of bitterness. international markets, in the form of a ricochet from the globalization of economies.
The word “Euribor” comes from the contraction of the “Euro Interbank Offered Rate”, being the interest rate practiced between interbank loans which, in a simplified way, is the “price” of money for the bank. There are 5 reference rates: 1 week, 1 month, 3 months, 6 months and 12 months.
In this article, we will focus on the 12-month Euribor, as it is very common in the context of (mortgage) housing loans.
The rate that the bank cobra it is typically composed of the spread (the bank's fixed rate) plus the Euribor (a component that is variable). It is for this reason that installments are adjusted according to fluctuations in the Euribor rate, called the index rate.
Looking at the historical data provided by the European Central Bank (graph below), and analyzing the data on which the graph is based, between January 1994 and December 2008, the 12-month Euribor average is 3,48%.
If we remove the period of instability from 2007 to 2008, we have that this average is centered (data up to December 2006) at 3,90%.
Let's see the effect of the variation in the rate with a practical effect, considering a loan of 200.000 euros at 35 years, with a spread of 1,5% indexed to Euribor 12 months.
On March 31, 2022, this rate was in negative territory (equivalent to 0%), which means that the monthly installment amount would be 612,37 euros. Last June 30, the 12-month Euribor reached 0,852%, leading to an increase in the installment of 86,88 euros.
It is expected that this index can continue to rise. Analyzing the same example, but considering the historical average rate calculated between January 1994 and December 2006 (the 3,9% mentioned above), we have that the installment would have an increase of 448,59 euros compared to the value on 31 March , rising to 1060,96 euros.
Thus, we can observe that, if the 12-month Euribor returns to pre-crisis territories of the subprime, the impact on the family budget is quite significant.
In this sense, it is important that families prepare themselves, making use of some mechanisms that they have at their disposal, such as the figure of credit renegotiation (the customer can request renegotiation), in order to obtain more advantageous conditions and cushion the effects of a situation such as the one we have just seen.
Attention is drawn to the option of fixing the rate on home loans, something that is not yet very popular in Portugal, but which allows for a smoother management of the family budget, regardless of the particular conditions of the interbank market, which is currently forming at the moment.
Author Luis da Ponte is an effective member of the Order of Economists.
He has a degree in Business Management and a postgraduate degree in Corporate Finance from the University of Algarve and a degree in Public Administration from the University of Minho.
Professionally, he is the owner of the companies “VDP – Consultoria | Insurance” and “TSE Industrial”.
Note: article published under the protocol between the Sul Informação and the Algarve Delegation of the Order of Economists