How does the rise in interest rates in 2023 affect you?

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For months we have been hearing about the increase in interest rates and the consequences it will have on the pockets of consumers and companies. In this post we want to analyze how the rise in interest rates in 2023 will affect households and what measures can be taken to deal with it. There is a general increase in the prices of goods and services in the market, it is what is called inflation and has the consequence of reducing the value of the currency (in our case, the euro) over time. It is an issue that worries us all and, above all, those people who have a mortgage.

What can happen to interest rates in 2023?

The last interest rate rise was on December 15, 2022 and was 50 basis points. But what will happen in 2023? Will the rise in interest rates continue? The European Central Bank has warned that interest rates may continue to rise. Although more slowly since the objective continues to be to reduce inflation by 5%. The next review will be in February 2023 and the European Central Bank will decide whether or not to increase interest rates based on the evolution of inflation in the coming months.

Effects of the 2023 interest rate hike

In recent months there have been several historic increases in interest rates by the European Central Bank that have meant that the price of money reaches the level it had in 2008. These increases, after years of negative interest rates , have been produced to slow down the rise in prices (inflation). Among the effects of the rise in interest rates, we highlight the following:

Rise in mortgage interest rates

Both in the case of people who have contracted a mortgage at a variable interest rate or at Those who want to contract it will be affected by the rise in the interest rate since the monthly mortgage payment will increase. This has meant that home buyers who need financing are more inclined towards fixed-rate mortgages, although they are usually more expensive, but they provide the advantage of knowing that the installment will not increase and that the same amount will be paid every month. On the other hand, homeowners mortgaged with variable-rate loans will have the option of negotiating a fixed rate with the bank or making partial repayments of the mortgage. As for mortgages, with the increase in interest rates, other effects may occur, such as the following: – That banks no longer finance more than 80% of the appraised value and finance a lower percentage so that homebuyers need to have more of their own savings. – That the requirements for granting mortgages be tightened (solvency, bonding conditions, etc.), so that access to mortgages is more complicated.

If you need a loan to buy furniture or do a job at home: it will be more expensive

HardFor a long time, banks offered loans at a reduced interest rate. It made it easier for homeowners to buy furniture or do homework, for example. However, over time, the interest rate on consumer loans has increased and, according to data from the Bank of Spain, it stands at 7.3%. This not only affects household consumption, but also companies that usually borrow to pay suppliers or buy machinery, for example. This can have a negative effect on business investment and their productivity.

Increase in delinquency

Another of the important effects that the increase in interest rates can have is the increase in delinquency due to the difficulty of debtors to pay the installments of loans and mortgages (both in the case of individuals and businessmen). . However, it is considered that during the pandemic and confinement households have saved. Therefore, it is possible that the increase in interest rates does not lead to an increase in delinquency as occurred in previous crises.

Increase in the profitability of deposits, bonds and fixed income

Deposits from individuals and companies increase their profitability when there is an increase in inflation. A year ago the profitability offered by these products was around 1%. However, it is now between 3% and 3.5%. The same goes for bonds and fixed income.

Possible decrease in real estate investment

The increase in interest rates means that the purchase of real estate to obtain a return is reduced because investors can detect that there are other products such as bonds that offer more returns.

Possible reduction in home sales

When the price of money is higher, homebuyers tend to think more about buying a home. As demand is reduced, apartments take longer to sell and prices may fall. It can also happen that in the real estate portals the prices of the houses are maintained. But the difference between those prices and the closing prices of the operations increases.

What can you do if you want to buy a home and need financing?

People looking to buy their first home wonder what to do in the face of the more than possible increase in interest rates in 2023. The price of money will increase, so several measures can be taken if financing is needed to buy: –Analyze the money you need. For this, it is important that you value not only the purchase price, but also all the expenses and taxes associated with the sale. –Compare the savings you have to reduce the financing you request. –Evaluate whether a variable-rate or fixed-rate mortgage is better. In the second case, you will have more security because the installment will not vary over time. But with the rise in interest rates, variable-rate mortgages are becoming more expensive. –Compare offers. It is important that you request financing offers from several banking entities to verify the conditions. Do not look only at the interest rates but also at the term, the requirements that you must meet and the link conditions that they request (insurance contracting, pension plans or cards, for example). –Get advice from experts. It is important, before applying for financing, to seek advice from experts in mortgages and in the real estate sector. So you can compare the options that exist and verify, from an expert point of view, which one best suits your needs. In short, in 2023 a increase in interest rates is expected that will affect all individuals and companies. Especially, to those people who have signed or are going to sign a mortgage. It is important to be attentive to the decisions of the European Central Bank. And also, to know how interest rates evolve before requesting financing to buy a home.