As expected, money has become more expensive. The 25 basis point increase by the European Central Bank (ECB) adds more pressure to family budgets, which have already been feeling the inflation surge -4.3% in Spain due to rising fuel prices- also because of the war in the Middle East. With increasingly heavy monthly payments and the higher cost of borrowing, everything leads to less room for consumption.
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Those with a variable-rate mortgage due for review this September will notice an immediate increase in monthly payments, of up to almost 200 euros (more than 2,000 per year). With the provisional average Euribor – the reference indicator – at 3.101%, an average mortgage of 150,000 euros (over 25 years with a 1% margin), the payment rises by 72.70 euros per month (872.46 euros per year). If the outstanding debt amounts to 200,000 euros, the additional cost approaches 100 euros monthly (1,187 euros per year), while for loans of 350,000 euros the increase is 173 euros (more than 2,077 per year).
However, mortgaged households have already been feeling the impact even before this Thursday’s decision was announced. The 12-month Euribor closed August at its highest level since September 2024. Pablo Vega, expert from the mortgage comparison site Roams, warns that the cost increase could intensify in the coming months if the ECB implies that the rate hike cycle is not over. Something that the ECB president, Christine Lagarde, did not rule out at Thursday’s press conference and confirmed they will continue acting “meeting by meeting” determined to meet the goal of bringing inflation back to 2%.
Besides families having to allocate a larger portion of their income to paying installments and thus having less disposable income to consume, “those needing new financing may face more expensive or harder-to-get loans. In tighter profiles, some operations might even become unfeasible,” explains Vega. In fact, it could reinforce the “caution” of institutions when assessing the repayment capacity of those applying for a mortgage or loan. “It does not imply a widespread credit closure, but it could translate into a more demanding selection of higher-risk profiles,” for example, highly indebted households, with unstable income or little financial cushion.
Similarly, Laura Martínez, spokesperson for iAhorro, warns that banks could pass on their higher financing costs by raising the nominal interest rate (TIN) by between 0.2% and 0.5% compared to current levels; which would make offers more expensive for those seeking a new loan. Some other institutions might even opt to reduce their year-end offers. And not only regarding mortgages. “If banks find it more costly to finance themselves, it directly affects users in other types of financing,” Martínez points out.
In the real estate market itself, it also represents a risk of deteriorating affordability, at a time when it is already critical for many families due to housing prices. “The family needs more savings for the down payment, requests a larger loan and, at the same time, finances that amount at a higher rate,” Vega details. “Even if the bank does not change its criteria, the same payment limit allows financing less capital: this may force providing more savings, looking for a cheaper home, or postponing the purchase.”
This not only affects demand but also supply, which is already scarce in the country. María Jesús Fernández, senior economist at Funcas, points out that the increase also directly hits new construction supply by making the development of projects more expensive since it is an activity “that depends heavily on credit.” “The credit cost increase means a significant rise in financial costs in this case for housing development activity and therefore also reduces investment in housing construction,” she notes.
That said, although it represents an increase that tightens many households’ budgets, Fernández highlights that more and more households have fixed-rate mortgages, so ECB decisions and Euribor fluctuations do not affect them as much as variable-rate ones. She also emphasizes that the rise in the mortgage reference indicator is far from an extraordinary increase compared to 2022 or 2023 after the start of the Ukraine war (when reviews raised rates by more than two or three points). For this reason and the low levels of critical indebtedness – unlike during the 2008 bubble – “the impact is by no means enough to induce a crisis.”