Euribor for May 2007: 4.373%
Euribor – the interest rate most commonly used to calculate mortgage payments in Spain – rose again last month to 4.373% (to be confirmed by the Bank of Spain). This will push up the cost of financing a Spanish property purchase with a mortgage from a lender in Spain.
This is the twentieth monthly increase in Euribor, which is now at its highest level since May 2000. Euribor is now 32% higher than it was a year ago, and 108% higher than in June 2004.
The average Spanish variable-rate mortgage of 140,189 Euros over 25 years will now cost 809 Euros per month to repay, compared to 725 Euros per month before the latest increase in Euribor. This makes the average Spanish mortgage 84 Euros per month 1,008 Euros per year more expensive.
The Spanish Mortgage Association blames the rising cost of mortgage borrowing on the tighter monetary policy of the European Central Bank (ECB), and warns that highly indebted households are starting to feel the strain.
Juan Ramón Quintás – president of the Spanish confederation of savings banks (CECA) – is reported as saying that the level of mortgage defaults after the latest increase in interest rates is still surprisingly low, although there are signs that it is on the increase. Quintás points out that it is normal for mortgage delinquency rates to increase with interest rates. “Mortgage delinquency rates are still below 1%, compared to 7% that Spanish lenders have had to deal with on occasions in the past,” Quintás is quoted as saying.
Euribor is derived from the Eurozone base rate set by the governing council of the ECB during monthly meetings presided over by Jean Claude Trichet – President of the ECB. The ECB raised base rates from 3.5% to 3.75% in March, and then by a further quarter point to 4% on 6 June. BBVA – one of Spain’s largest banks – expects base rates to rise to 4.25% by the end of the year, and Spanish property prices to fall in 2008 as a consequence. UK and US interest rates stand at 5.5% and 5.25% respectively, both higher than rates in the Eurozone.
Mortgage experts are reported in the Spanish press as arguing that Spanish households can manage the present level of mortgage interest rates in Spain, but will struggle to manage if base rates rise to 4.5% and Euribor to 5.5%, a scenario that nobody yet expects. One has to assume that the rising cost of borrowing will hit Spanish demand for holiday homes harder than demand for primary residencies, and that base rates of 4% will have a major negative impact on the ability of Spaniards – already feeling the pinch with mortgage on their main homes – to afford holiday homes on the coast.
According to the National Institute of Statistics (INE), the average Spanish residential mortgage in March was valued at 147,268 Euros, up 6.3% in a year, with a term of 26 years and an interest rate of 4.51%. Of the 169.709 mortgages signed in March, 97.9% were variable rate. The largest number of mortgages was granted in Andalusia (35,399), followed by Catalonia (26,137).
© Mark Stucklin (Spanish Property Insight)