- On 8 September the ECB raised rates by 0.75 points, the biggest rise since the euro was created.
- Euribor kept climbing, and each rise is passed on with a delay to loans referenced to it.
- Considering early repayment or a switch to a fixed rate came onto the table: it is wise to work it out with the bank or an adviser, using real numbers.
On 8 September 2022 the European Central Bank raised interest rates by 0.75 points, the biggest rise since the euro was created. Euribor kept climbing. Only months earlier, the idea that the ECB would raise rates had seemed remote; now it was doing so with unprecedented intensity. For those with debts, and for savers too, understanding the scale of the change is essential.
The decision confirmed that the central bank was prepared to act firmly against inflation, even if that made credit dearer and weighed on growth. For millions of households with variable-rate mortgages and for companies with financing referenced to Euribor, the cost of money was rising at a pace few had foreseen. The coming months would be decisive in showing how household and business budgets responded. For the ECB, the balance between controlling prices and not damaging activity too much is a delicate task, and its decisions are explained with that dual aim in mind.
A record that changes the sums
Raising rates by three quarters of a point at once, the biggest rise since the euro was created, is not a minor adjustment. Each rise is passed on, with some delay, to loans whose rate is tied to Euribor, and when rises are this large the effect on the household budget is far more visible.
To understand the effect on a specific payment, one has to consider the outstanding principal, the remaining term and the rate applied. A one-point increase can mean tens or hundreds of euros a month, depending on the amount, and the difference accumulates year after year. That is why it is not enough to know that rates are rising: it must be translated into one’s own mortgage, with the help of the lender or the official simulator. To get an idea, it is enough to multiply the difference in rate by the outstanding principal and divide by twelve: the result is the approximate extra monthly cost.
The mortgage payment
For families with a variable-rate mortgage, the payment began to rise noticeably at each review. Those with an annual review saw the change all at once, and those with a half-yearly one felt it sooner. The effort that once seemed manageable could stop being so if income did not grow at the same pace.
When the payment rises, the margin in the household budget narrows, and it is wise to identify in advance which expenses can be adjusted. It is also wise to talk to the lender before difficulties appear, not after: the earlier a situation is raised, the more options exist to restructure terms or find solutions. Keeping open communication with the bank usually makes agreements easier.
Which options are studied
Considering early repayment or a switch to a fixed rate came onto the table. Each option has advantages and costs: paying down reduces debt but consumes liquidity, and moving to a fixed rate gives certainty but usually means a higher initial rate and possible fees. It is wise to work it out with the bank or an adviser, using real numbers.
A useful rule is not to take the decision purely out of fear of another rise or in the hope that rates will fall soon. It is a matter of comparing scenarios: what happens if rates keep rising, stabilise or fall, and what each option costs in each case. And not to forget to keep a liquidity cushion for the unexpected before putting savings into paying down debt. Each family’s situation is different, and there is no answer that suits everyone.
With mortgages, peace of mind is built before the next review.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
