The European Central Bank on Thursday piled on a tenth straight interest rate increase pressing forward in its fight against stubbornly high inflation that has been plaguing consumers all across Europe.
However, analysts in Cyprus are worried that higher borrowing costs could help push the economy into recession. And they try to judge how much anti-inflation medicine is too much.
At the same time, the higher interest rates along with the high cost of living have reduced the borrowing capacity of households for new loans mainly home mortgages. They may also trigger a new wave of non-performing loans, Philenews reports.
How much the cost of paying a mortgage loan has increased since July 2022 following the ECB’s successive decisions?
This is an example: In June 2021, a mortgage loan with a balance of €200,000 and a repayment term of 20 years had an average interest rate of 2.7% and a repayment of €1,080.
Today, the interest rate may be 6.5% or even 7% and the instalment may have increased to €1,495 or €1,555 respectively. This means that – compared to last year – the monthly instalment is about €470 higher.
The question is what happens with other loans considering that the banks have announced plans only for home mortgages. Because, businesses holding a floating rate or Euribor-linked loans are now confronted with an unbearable burden.
Before Thursday’s new ECB rate hike, business loans (with July as reference month) for amounts up to €1 million had an average interest rate of 5.65%. And those above €1 million had an average rate of 6.33%.
It is no coincidence that the largest loan restructurings by banks concern business loans considering that compared to last year the monthly instalment is higher by about €470.