Two billion from Mise for development contracts, with aid to those who reduce consumption - Economy

ECB: the effects on the economy. Mortgages and loans, here’s what changes – Economy

The record hike in rates decided by the ECB has immediate consequences, others in the medium term and others that are difficult to predict. In the immediate future there are, for example, the reaction of the markets and the effects on the euro (which is appreciated) and on government bond yields (which rise) destined to influence investors and increase the outlay on the accounts front. public: 100 points of differential turn into a higher interest expenditure on government bonds of 19 billion in three years. Instead, it is in the medium term that the economic effects of higher rates are assessed, because monetary policy takes up to 18 months to unfold its impact. The operation of the Frankfurt decision transmission chain is also unpredictable: banks, for example, could decide not to touch commercial rates, reducing their profit margins.

MORTGAGES MORE EXPENSIVE, REAL ESTATE AT RISK. It is one of the most immediate consequences for citizens: the rate of new loans is set to rise, discouraging new home purchases and depressing the real estate market. The portal makes a calculation of the increase by taking into consideration a mortgage of 126 thousand euros over 25 years, stipulated in January 2022, with a loan-to-value (value of the loan compared to the property under guarantee) of 70% and a nominal initial rate (Tan) of 0.67%. With an increase of 75 basis points, the installment – which at the beginning of the year was 456 euros, which had risen to 515 after the July rate hike – would increase to 560 euros. If the rates rose instead of 50 points, the increase would instead be of 30 euros with an installment that would stop at 545 euros.

DOWN THE LOANS TO COMPANIES, THE ECONOMY IS SLOWING. In an increasingly uncertain climate, and with the cost of money ever higher, businesses will reduce the demand for funding. Which means less investment, less innovation, less growth. With enormous consequences for the labor market which is destined to contract. But the slowdown in GDP is a necessary evil to bring down demand and therefore prices.

BACK TO SAVING. The trend was already underway due to high inflation which discourages consumption, but now the interest rates of the banks that will rise again will lead citizens to leave their savings deposited to earn something. How much, it is difficult to imagine, but it will certainly be immediately noticeable coming from years of zero interest.

THE EURO REVALUES. It is one of the effects – textbook, therefore net of the altered economic context – most desired, given that the single currency has fallen to its lowest level under the dollar in twenty years. Higher rates lead to a greater flow of money into European banks, strengthening the currency. Exports will cost more, imports less, increasing the ‘aggregate demand’, that is the amount of expenditure made (by the public and private individuals) for the purchase of national goods.

DEBT COSTS MORE. It is not a direct effect, but the increase in the discount rate also increases the value, the yield, which the State must recognize to the subscribers of Bots, BTPs and CCTs. They are the government bonds with which the public debt is financed. Yields have already adjusted, not just in auctions. At the end of August, the five-year BTPs were placed at 3.09%, with an increase of 28 points on the previous auction. On the secondary market, on the other hand, the ten-year BTP exceeded the 4% threshold in recent days. Now it stands at this level while only at the beginning of August it was traveling on 3%. How much does it cost to the state coffers? The latest estimates by the Parliamentary Budget Office (UPB), i.e. the Italian public accounts authority, have estimated that a stable increase in the differential of 100 points increases public spending by 19 billion in three years: 2.5 billion in 2023 , 6.7 billion in 2024, 10.1 billion in 2025.

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