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Why you can rejoice in the bankruptcy of Silicon Valley Bank if you have a variable mortgage

There is no evil that does not come for good. Believe it or not, even the bankruptcy of a bank, in this case that of the American Silicon Valley Bank (SVB) and the possible bankruptcy of Credit Suisse, has its good side. If you have a contracted variable mortgage, the bankruptcy of this financial institution benefits you, because its fall from grace has caused a domino effect that has led to the collapse of the Euribor. Do you want to know why? Read!

The Euribor collapses after the bankruptcy of SVB

Until a few days ago, the Euribor, which is the index used to calculate the interest on variable mortgages, was clearly trading upwards. In fact, most forecasts (including those of HelpMyCash) pointed to it going to exceed 4% in March, something that had not happened since 2008.

The bankruptcy of Silicon Valley Bank, however, has changed the landscape. Since last Friday, when the bankruptcy of this entity was announced, the daily value of the Euribor has plummeted by almost half a percentage point. You can see it in this graph:

And how does that benefit you if you have a variable mortgage? If the Euribor stops rising, your interest will not increase so much in the next review, if your interest is updated in the following months. Therefore, your fees will become less expensive than expected.

Is your variable mortgage reviewed next month? On this page, you can see how much your odds will go up on average.

Why has it suddenly come down?

Surely you will wonder what is the relationship between the bankruptcy of SVB and the decline of the Euribor. This US bank has fallen out of favor because of its mismanagement, but also because of the rise in interest rates in the United States.

If you want more information on this topic, you can read this article by Javier Mezcua, another of our financial experts.

Right now, in the North American country there is some fear that more banks could fail if its central bank, the Federal Reserve (Fed), continues to raise its interest rates. Consequently, many financial analysts believe that the Fed will ease its policy and slow the pace of increases.

In Europe it does not seem that banks will suffer the same fate as Silicon Valley Bank, but there are already experts who predict that the European Central Bank could follow in the footsteps of the Fed. That is, it could raise its interest rates less, which now stand at 3%.

At this point, it should be remembered that the Euribor represents the average interest at which European banks lend money to each other. As these entities believe that the ECB could raise its rates less, in recent days money has been lent with a lower interest than in the previous ones; Hence, the Euribor has chained several declines since Friday.

Will it continue to fall?

We will soon know if these forecasts are met or not, because this Thursday the Governing Council of the European Central Bank meets to decide whether to raise its interest rates. From our point of view, there could be three scenarios:

  • That the ECB stay the course because it considers that this US banking crisis does not affect the European financial system. In this case, it is more than likely that its main interest will rise to 3.5%, which will trigger the Euribor in March to 4% or more.
  • That the ECB raises its interest rates, but less than expected for fear that more aggressive increases will generate problems for financial institutions. If this scenario occurs, it is likely that its main interest will increase slightly to 3.25% or less and that the Euribor in March will be around 3.75%.
  • That the ECB does not raise its rates to prevent the housing situation in the United States from being replicated in Europe. In this case, its main interest will remain at 3% and the Euribor, probably, will close March around 3.5%.

As a general rule, the Euribor is always between half and one percentage point above the main interest of the European Central Bank.

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