Mortgage loans will rise from 1500 to 2500 per year due to rising interest rates

Compared to last summer, the monthly payment for the average homeowner has increased by at least 150 euros, and if forecasts of a 4% increase in the euro interest rate by June come true, maintenance costs could exceed 200-250 euros per month.

Rising borrowing costs, combined with a rise in house prices of more than 11% year-on-year in the third quarter of 2022, makes it even more difficult for Greeks to own their own home. Even now, the average Greek is forced to work harder than the average European, because in order to buy a house of 100 sq.m. he needs 12-14 years of savings and work.

According to ΟΟΣΑGreece, along with Ireland, has the highest rates of difficulty in acquiring housing among all countries of the European Union. In most countries EU it takes half the time – from 6 to 8 years.

ECB data
According to the European Central Bank, the increase in the monthly payment averages 123 euros for a loan of 130,000 euros with a maturity of 25 years. This is an additional burden for households, exceeding 1,500 euros per year. Given the new round of European Central Bank rate hikes, Greek borrowers could face a rapid increase in loan repayments in just a few months.

For example, a mortgage borrower with €100,000, whose monthly payment in June 2022 will be €500, will face an increase in repayments that will exceed €700 in the coming months. The burden on Greek variable rate borrowers is heavy and is expected to remain high until the first half of 2024.

Economists do not give positive signals for the future. Eurozone interest rates are expected to remain high until next summer. If the scenarios hold true, borrowers will have to arm themselves with patience, which means that those who repay variable rate loans will continue to make high payments even over the next 2-3 years. That’s how long it could take for ECB numbers to fall back into a range of around 2%.

zero to red
Analysts’ signals portend another increase in the key interest rate by 50 basis points at the upcoming ECB meeting on March 16. This will be followed by two more adjustments of 25 basis points on May 4 and June 15. In sum, this means that the euro base rate will rise from 3% to 4% at the end of the first half of the year. It is expected that it will remain at this level until the second half of next year. This will lead to higher Euribor rates, to which most mortgages in Greece are pegged.

For Greek reality, and of course for households, this means that the floating mortgage rate could reach 6.5%-6.7%. That is up 175 basis points from the current level. The rise in borrowing costs began last summer, when the quarterly Euribor rate was -0.50%. In March 2023, the interest rate associated with floating mortgages rose to a 15-year high of 2.86% and thus, together with the margin, forms the ultimate cost of borrowing at 5%. That is, for a loan of 100,000 euros with a maturity of 15 years, the monthly payment is 810 euros, compared to 670 euros when paying at a zero Euribor rate.

It should be noted that, according to Eurostat, the cost of housing in our country as a percentage of disposable income in 2021 was 34.2% (of the household budget). The share of the population living in households for which housing costs exceed 40% of disposable income (congestion ratio) was higher in 2021 for those who rent housing (74.6%) compared to owners who pay a mortgage (18, 5%).

PS Let’s hope that bank failures in the US do not turn into full global crisisotherwise the number of debtors and those who will be evicted from housing purchased on credit will grow exponentially.

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