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250% increase in mortgage rates in two years

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250% αyξηση στα ε&pi ;ιτοκια των στεγαστικoν δανεΙων &mu ;eσα σε δyο χρoνια

By Alexia Kafetzis

The profits of the banks reached 1.5 billion euros, breaking all previous records, despite the crisis, while installments for households and businesses increased up to 400 euros per month

The high interest rates of the last two years have magnified the debt service problem, with both high-income countries and emerging markets having already increased their debt by 100 trillion. dollars compared to a decade ago.

The well-known economist Arthur Laffer spoke about a decade of debt crisis, commenting on CNBC that global borrowing reached a record of 307.4 trillion. dollars. Just consider that as a share of global gross domestic product (GDP), debt has risen to 336%, up from about 110% in 2012 for advanced economies and 35% for emerging economies.

The debt crisis burdens households and small businesses

According to the dialogue, increases in interest rates on loans imposed by banks over the past two years have reached 250%, inflating the installments that households and businesses pay each month. At the same time, the banks' profits for 2023 reached 1.5 billion euros, breaking all previous records, despite the prolonged crisis that has plagued society and the economy over the past two years due to the effects of the coronavirus and wars in Ukraine and Gaza.

From the analysis of the data of the Central Bank, the following emerges among others:

• New mortgages: In January 2024, the interest rate on new loans to households for the purchase of a house reached 5.26%, compared to 2.15% in January 2022. That is, in two years it increased by 311 basis points or rate of 245%. For example, for a loan of 150 thousand euros the installment has increased by 4,665 euros per year or 389 euros per month. It is also noted that despite the fact that the European Central Bank has frozen its interest rates from September 2023, Cypriot banks continue to impose increases. Indicatively, in recent months new increases of 84 basis points have been imposed (s.b.: in September 2023, when the brakes were put on ECB interest rates, the average in Cyprus was 4.42%, while in January 2024 it reached 5.26 %). On the other hand, the data show that banks have to some extent reduced the related charges (the cost of research, administration, preparation of documents, guarantees, etc.), with the result that the increase in the Total Annual Charge Rate (APR) has limited to 162 basis points or 158% (from 2.8% to 4.42%). Still, the big picture is bleak for borrowers.

• Existing mortgages: The interest rate on loans with a repayment schedule of more than five years has increased by 233 basis points or 214% (from 2.04% in January 2022 to 4.37% in January 2024). This means that for a loan of 150 thousand euros the installment has increased by 3,495 euros per year or 291 euros per month. It is also noted that on loans with a schedule between 1-5 years the interest rate has increased by 225 basis points or a rate of 236% (from 1.66% to 3.91%), while on loans with a schedule of less than one year it has increased by 164 basis points or 205% (from 1.56% to 3.2%). It is pointed out that many loans which were on the verge of sustainability, may face serious problems in the coming months, since all the protection net for borrowers from foreclosures has been removed.

• New loans to companies: The interest rate on new loans for amounts up to 1 million euros has increased by 244 basis points or 176% (from 3.21% to 5.65%). For example, for a loan of 150 thousand euros the installment has increased by 3,660 euros per year or 305 euros per month. It is also noted that the interest rate on new loans concerning bank overdrafts has increased by 242 basis points or a percentage of 175% (from 3.21% to 5.63%), while on loans for amounts over 1 million euros it has increased by 316 basis points or 211% (from 2.86% to 6.02%).

• Existing loans to companies: The interest rate on loans with a repayment schedule of more than five years has increased by 283 basis points or 196% (from 2.94% to 5.77%). Also, the interest rate on loans with a schedule between 1-5 years has increased by 325 basis points or a percentage of 204% (from 3.13% to 6.38%), while on loans with a schedule of less than one year it has increased by 234 basis points or 169% (from 3.38% to 5.72%).

• Household deposits: The corresponding increases given by banks to depositors are much smaller than the increases imposed on borrowers. Indicatively, on existing household bonds with a term of up to two years the interest rate has increased by just 0.71% (from 0.08% in January 2022 to 0.79% in January 2024). Also, in the new bonds with a schedule between 1-2 years the interest rate has increased by 1.44% (from 0.11% to 1.55%).

• Business deposits: In existing bonds with a schedule of up to two years the interest rate has increased by 1.77% (from 0.08% in January 2022 to 1.85% in January 2024). Also, in the new bonds with a schedule between 1-2 years the interest rate has increased by 1.99% (from 0.12% to 2.11%).

90% of of new financing given by banks to businesses concerns loans of more than 1 million euros each, which are apparently linked to the very large ones.

Indicatively, in 2023 new loans were given to businesses totaling 4.98 billion euros, compared to 2.94 billion euros the previous year. Despite this, loans for amounts up to 1 million euros decreased by 4.9 million euros (from 530.6 million euros to 525.7 million euros), while loans for amounts above 1 million euros increased by 2.05 billion euros (from 2.41 billion euros to 4.46 billion euros).

As a percentage, loans over 1 million euros took 89.5% of the financing to businesses in 2023, while the pattern appears to be continuing. Indicatively, in January 2024 new loans amounting to 251.1 million euros were granted, of which 210.5 million euros (83.8%) concerned loans of more than 1 million euros each.

< p>Households were given new loans of €1.35 billion in 2023, compared to €1.42 billion the previous year. That is, they decreased by 68.4 million euros. It is also noted that housing loans decreased by 162.1 million euros (from 1.18 billion euros in 2022 to 1.02 billion euros in 2023). Also, in January 2024, 95.8 million euros were given, of which 71.7 million euros concerned housing loans.

Source: 24h.com.cy

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