This is a website for buyers, owners, and sellers of property in Spain, offering reliable information and resources to help you get things done with confidence. It is run by Mark Stücklin, author of the Spanish Property Doctor Column in The Sunday Times (2005-2008), and the book ‘Need to Know: Buying Property in Spain’ published by Collins.
Euribor for July 2007: 4.564%
Euribor – the interest rate most commonly used to calculate mortgage payments in Spain – rose again last month to 4.564% (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.
There have now been 22 consecutive monthly increases in Euribor, pushing it up to its highest level since February 2000. Euribor is now 29% higher than it was a year ago, and 117% higher than in June 2004.
For a typical 25-year Spanish mortgage of 150,810 Euros with a rate of Euribor + 0.5%, monthly mortgage repayments will rise by 88 Euros a month to 887 Euros, adding roughly another 1,000 Euros to the annual cost of paying the mortgage.
According to the Bank of Spain, mortgage repayments now eat up 44.8% of gross households income, well above the recommended level of 30%. With interest rates are rising to more normal levels, Spanish households are now financially stretched by mortgage repayments. Having said that, mortgage defaults are still close to historic lows.
Mortgage analysts expect Euribor to keep rising in the second half of the year, though at a slower rate.
The holiday home market will be the first to feel the pinch from rising mortgage rates. Financially stretched Spanish households will abandon the holiday home, or plans to buy one, before defaulting on the main home. The Spanish are the biggest buyers of holiday homes on popular Spanish coasts, so rising interest rates are bound to have a big impact on the property market in these areas.
Base rates
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 4.5% by the end of the year, and Spanish property prices to fall in 2008 as a consequence. UK and US interest rates stand at 5.75% and 5.25% respectively, both higher than rates in the Eurozone.
© Mark Stucklin (Spanish Property Insight)
