Euribor for April 2007: 4.249%

Euribor – the interest rate most commonly used to calculate mortgage payments in Spain – rose again last month to 4.249% (to be confirmed by the Bank of Spain).

This is the 19th monthly increase in Euribor, and places it at its highest level since August 2001. Euribor is now 32% higher than it was a year ago. This means that variable-rate mortgage interest payments in Spain (98% of all mortgages in Spain are variable rate) have also risen substantially.

Euribor is derived from the Eurozone base rate set by the European Central Bank (ECB). The ECB raised base rates in March from 3.5% to 3.75%, a move that was widely expected by the markets, and already priced into Euribor rates.

According to Jean Claude Trichet – President of the ECB – interest rates for the Eurozone are still moderate and expansionary, suggesting that there are more interest rate rises to come this year. Many analysts expect rates to rise to 4% this year (with another increase in June or July), though some financial institutions, most notably the Spanish bank BBVA, expect base rates to go as high as 4.25% this year.

Spain’s National Institute of Statistics has revealed that the average mortgage value rose from 147,322 in January to 150,146 Euros in February, which represents an increase of 11.5% compared to February 2006. The Spanish Mortgage Association has announced that mortgage default rates in Spain have risen to 0.41%, a level that, though on the increase, is still close to historic lows.

After the lastest increase in Euribor, monthly mortgage repayments on the average Spanish mortgage (150,146 Euros, 26 years) will rise by 88 Euros to 856 Euros/month, which means an extra 1,050 Euros per year.

153,726 new mortgages were signed in February, a decrease of 4.3% on a year earlier. New mortgages by value reached 27 billion Euros, an increase of 10.6% on a year earlier.

But according to Spain’s Association of Independent Financial Advisors (La Asociación de Profesionales Asesores Independientes Financieros – AIF), quoted in the Spanish daily ‘La Vanguardia’ during March, many Spanish households are struggling to meet today’s higher mortgage payments, which is why properties are now coming onto the market “20% cheaper than 3 months ago.” Mortgage lenders in Spain are also reporting an increase in the number of people who are unable to make their mortgage payments on time.

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© Mark Stucklin (Spanish Property Insight)