The economic situation points to a rise in interest rates. Europe has largely recovered the GDP lost due to the pandemic; however, inflation has skyrocketed. In February, the CPI -Consumer Price Index- in Spain experienced an upward variation concerning the previous twelve months of more than 7%, a figure that wasn't that high for decades.
For its part, the US Federal Reserve already predicted a rise in interest rates at the beginning of the year, and the president of the ECB recently left the door open to it. The international outlook added to the rise in electricity, gas and fuel pricing could be the final push that leads to the decision.
Will the rise in interest rates affect housing?
Of course, any fluctuation in interest rates impacts the real estate market directly. The Euribor, the reference index for mortgage loans, has presented negative figures since 2016. Though we don't expect to reach level 0 in the short term, it would be affected by the new situation. It has shown a slight recovery since the possibility of this increase got announced.
If a step forward gets finally taken, the most affected would be variable-rate mortgages. According to some estimates, they could increase by around 150 euros/year (for a loan of 150,000 euros). That would tip even more the balance towards fixed-rate mortgages, with a much lower risk in an upward scenario of the Euribor.
In any case, no decision has yet been made, which makes it very difficult to forecast the scene for the coming months. It would be necessary to wait for the decision and see to what extent interest rates get increased to predict the behaviour of the financial and mortgage markets and the property market.
In the absence of that decision, other factors that can also affect the real estate market must get considered. On the one hand, the loss of purchasing power of families that's due to inflation. On the other hand, the increase in the cost of raw materials will affect new constructions, which could experience increases.
With a rise in interest rates, the sale of housing could be affected. Therefore, from the same sector and the banking sector, corrective measures should be taken so as not to hinder the recovery of recent months.
Why not delay the decision to buy a home
The uncertainty about the possible rise in interest rates is now the dominant note. But, if it gets finally carried out, it will have short-term repercussions. Those who plan to purchase a home in the coming months shouldn't delay the decision to avoid losing advantages that still exist at this time.
On the one hand, now is the right time to obtain financing in very affordable conditions. On the other hand, inflation is already beginning to affect the price of housing. And, to this, we should add the recovery process that the real estate market has experienced in recent months that tips the balance for prices to continue to rise.
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