Euribor for December 2007: 4.79%
Euribor – the interest rate most commonly used to calculate mortgage payments in Spain – rose last month to 4.79% (to be confirmed by the Bank of Spain), the highest level since December 2000.
The latest rise means that monthly repayments on the average variable rate mortgage of €150,000 at 25 years will rise €75 from €827 to €902 Euros per month, an increase of around €900 per year. Many variable-rate mortgages reset in December, so increasing mortgage costs will be a reality for many borrowers in 2008. However, note that the average Spanish mortgage rate is now around 5.5%, which is only 1.2% above the inflation rate. So in real terms, Spanish mortgages rates are still low at 1.2%, and are probably some of the lowest in Europe. Low or even negative real mortgage rates in Spain help explain the intensity of Spain’s real estate boom, which after a decade of property price increases and a huge surge in housing starts, is only now coming to an end.
According to the National Institute of Statistics mortgage approvals fell by 10.39% last September, and according to the Bank of Spain mortgage delinquencies are on the rise, both of which are signals that the Spanish housing market is cooling. To make up for lost revenues it appears that lenders are increasing the fees they charge for mortgage approvals, further driving up the cost of mortgage in Spain.
Euribor is determined by the Euro-zone base rate set by the European Central Bank. There has been recent speculation that the ECB will lower rates in March, but with the latest inflation figures showing Euro-zone inflation running at 3.1 percent, well above the ECB’s medium-term goal of just below 2 percent, the chances of a rate cut in March are receding.
© Mark Stucklin (Spanish Property Insight)