ECB raises inflation estimates to 6.3%, what changes for mortgages and rates

The central bank in Frankfurt has worsened its price increase forecasts for the year that has just begun: 6.3%, the 2% target set by the Statute is far away, it will (perhaps) only be achieved in 2025. This is why the rates decided by Lagarde & co will go up again. And with them, mortgage rates, both existing (variable) and new (fixed and variable). What increases for our installments? The estimates of

No, 2023 will not be the end of inflation, which exploded in 2022. Few illusions about price increases, which will gradually begin to slow down but certainly not disappear: the ECB, in its latest bulletin, is very clear, and promises a year of further rate hikes to try to curb the escalation. So let’s get ready for further bloodletting for our pockets, not only for everyday shopping at the supermarket, for bills and fuel; but also for the most important loans for a family, from mortgages to consumer loans.

For the ECB, inflation at +6.3% in 2023

If the year that has just ended has seen a generalized rise in prices the likes of which have not been seen since the mid-1980s (+8.4% the final balance at the end of 2022 for the Euro area), the one that has just begun will not go so far from these levels: +6.3% according to estimates by the European Central Bank, which revised upwards the previous forecasts, published in September, a sign that overheating has not cooled at all, despite the repeated rate hikes implemented by the governor Christine Lagarde (according to the economic mechanism whereby, when prices rise, the cost of money rises to cool down the demand for those goods and thus curb their flow, even at the risk of slowing down the economy and therefore growth). Only in 2025, for the Eurotower, can a descent to the desired levels be foreseen (because they are close to the 2% target established by the Statute).

And there is a surprise: net of the more ‘volatile’ components, i.e. more subject to rapid changes such as energy and food, inflation should stand at 4.2%, while in 2022 it was lower, at 3 .9%. A sign that in the last year inflation was determined largely by the increase in the cost of gas and oil, also due to the war events in Ukraine, while in the course of this year the part linked to the demand for goods and services.

Good news for growth (because a forecast of sustained consumption removes the specter of recession), less so for price dynamics. That is why “interest rates still have to increase significantly at a constant pace to reach sufficiently restrictive levels to ensure a timely return of inflation to the 2% target over the medium term”, writes the Central Bank in its Bulletin.

How is all this translating – and will translate – on our pockets?

Variable mortgages, 100 euro more installment in the first 6 months of 2023

Let’s start with mortgages, taking an average contract as an example: a loan of 126,000 euros to be repaid over 25 years, at a variable rate. Let’s see how the installment has changed during 2022 and what could happen in the first 6 months of the new year (the forecasts for the second half of the year are still quite nebulous). Let’s take a mortgage stipulated in January 2022, with very low rates (0.67% on average): we start with a monthly installment of 456 euros.

The increase, during the first half of 2022, turned out to be not particularly salty: in June we are still below 1% of the interest rate, and the installment has risen yes, but not by much (we are at 469 euros ). The most decisive deterioration occurred in the second half of the year which has just ended, in conjunction with the acceleration of the ECB tightening. In December, the average rate had already more than tripled, reaching above 3%, with a monthly installment skyrocketing to over 600 euros.

And now? Forecasts for June on the Euribor rate (the one used by European banks to exchange money with each other, and used as the basis for calculations for variable mortgages) push both the rate (4.75%) and the installment (over 700 euros). In short, in a year and a half from January 2022 to June 2023), an increase in the monthly installment of more than 50% (according to the forecasts of the experts collected by

Fixed mortgages, higher rates for those who subscribe now

If anyone with a fixed-rate mortgage is breathing a sigh of relief – because in this phase they are enjoying the advantages of having ‘locked’ the rate some time ago, thus avoiding all the increases of recent months – it cannot be said same for those who recently went to the bank (or are preparing to go there) to subscribe to a new one. Here the deterioration of the conditions proposed by the main institutes is considerable, there are higher indices on the market than in the past. Looking at the best offers available, it emerges that today for a fixed mortgage (same denomination as before: 126,000 euros over 25 years) interest rates start at 3.26%, with an initial installment of around 614 euros; twelve months ago, however, the best offers started from 1% or so, with an installment of around 477 euros. This loan today therefore costs 137 euros more per month, that is to say: if we consider the entire duration of the loan, that is over 40,000 euros more in interest.

“The trend of increases should also continue in 2023” explain the experts of, even if it is not easy at present to make truly reliable forecasts on the IRS, the interbank index which serves as a reference for calculating mortgages at interest rates fixed. The experts add another aspect: the distance between fixed and variable has narrowed, and it’s not always easy to navigate. “Just think, for example, that today there are variable mortgages on the market with higher indexes than fixed ones”: while the opposite usually happens, given that those who subscribe to the variable take the risk of future increases, the initial rate is lower than those who choose the fixed rate, with which they ‘buy’ also the guarantee of not seeing the monthly payment vary.