About a year ago, I made a note about the impact that a possible rise in the Euribor, which was on the horizon, could have on the family budget of the Portuguese middle class. To do so, I used as an example a loan of 200 thousand euros, for 35 years with a spread of 1,5% (normal at the time) and the 12-month Euribor interest rate.
At that time, on June 30, 2022, the 12-month Euribor was negative, equivalent to 0% for banking calculations.
He then commented that, should the 12-month Euribor rise to pre-crisis lands from 2007-2011, and considering the average rate between January 1994 and December 2006, which is set at 3,9%. In this example, we would be facing an increase of €448,59 in the installment of the same loan.
A year has passed and, without any futurology, we can see that today, August 2023, the 12-month Euribor rate is at 4,056%.
Which means that for the example of the €200 loan, the installment rose by €469,01 in the space of one year.
In the overwhelming majority of times when I comment with clients about the Euribor, the answer given to me is not very conclusive and reveals a lack of knowledge of what it actually is.
Well, we can put it in a simplistic way that the Euribor is the “price” that the bank “pays” for the money, and the Spread is the “bank's profit margin” on that money.
From this point of view, we consider that the bank is an intermediary, in the sense that money is “supplied” at a Central Bank, and then “reselled” with a profit margin (“spread”) to the final customer – the family that take out a Housing Loan, for example.
However, these days, taking out a mortgage loan is a little more difficult, since not only has the Euribor risen, and well, but purchasing power has also fallen, as well as the price of houses and apartments. is at higher levels.
Speaking a little about the price of real estate, let's hope that the Municipal Master Plans (PDM) are updated in order to allow the construction of more dwellings, given that demand has remained constant and supply has not been able to keep up, which pushes prices towards up, as the old law of supply and demand dictates.
Something that would make it easier would also be to streamline the construction legalization process and some incentives, regarding Housing Credit, for the acquisition of vacant properties, since currently the bank only grants credit for 50% of the value.
This, together with a package of tax benefits, would help families recover properties in poor condition and without conditions of habitability.
At the same time, this would contribute to reclassify the real estate landscape in our country, which suffers from still having many properties in ruins, because it is difficult to access conditions to recover them.
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
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