Mortgage tranches soar 25% since July
In July 2022 base rates for most loans in Greece moved into positive territory, from zero where they had been for several years. Loans are normally priced based on the higher interest rate between the three-month Euribor and the benchmark European Central Bank rates at the end of the previous month. Based on this rule, for a typical floating mortgage in the Greek market, with a margin of 1.40% and a duration of 30 years, since July the monthly installment required to purchase the same capital has been increasing constantly.
Today the purchase of the same loan with the above characteristics requires a monthly installment that is 25% higher than that of July, while the same installment as that of July buys a loan today that is 20% smaller. For example, in July the purchase of a loan of 100,000 euros required a monthly installment of €346. This same tranche today buys a loan of almost €80,000.
Based on the analysis of major international banks as well as the messages sent by the ECB for an aggressive interest rate policy until the high inflation in the eurozone is tamed, in March 2023 these differences are respectively estimated at +42% and -30% and in June 2023 at +48% and -32%.
Therefore, in June 2023 the purchase of a standard mortgage is very likely to require a monthly payment that is almost 50% higher than what was required a year ago (at a base rate of 3.25%).
There are similar conclusions for an old loan that has 20 years left until its maturity, a loan that is from the mid- to late 2000s. In July, such a loan with a balance of €100,000 had an installment of €483, in November the installment is increased by €82 or 17% and the estimate for June 2023 is an installment that will be €150 or 31% higher.
Of course, these differences will be smaller if interest rate hikes slow down or become larger if we see an acceleration of rate growth. However, it is true that in the face of the very visible risk of recession in Europe, which is exacerbated by interest rate increases, the ECB puts forward as an absolute priority the treatment of high inflation, the course of which will ultimately define the trends in interest rates as well.
* Minos Moissis is a founding partner at the Synergon Partners consultancy.
