Euribor (12 months) – the interest rate most commonly used to calculate mortgage payments in Spain – rose to 5.361% in June, the highest level since the Euro was introduced. Euribor’s previous high was in August 2000, when it reached 5.248%.
Euribor is now 19% higher than it was a year ago, having risen 7.3% in percentage terms in June. Euribor is now one and a half times higher than it was in June 2004, when the Spanish property boom was in full swing, meaning that mortgage payments for people who bought then have more than doubled.
Even those who took out a mortgage just a year ago will see their monthly mortgage payments rise substantially. Monthly mortgage payments on a typical 150,000 Euros, 25-year mortgage taken out in June 2007 will rise by 75 Euros a month, or close to 900 Euros a year.
Euribor has been rising on expectations that the European Central Bank (ECB) will raise base rates this week to head off inflation, which rose in the Eurozone from 3.7% in May to 4% in June. The ECB’s inflation target is close to but less than 2%, and Jean-Claude Trichet, President of the ECB, has been dropping heavy hints that the ECB will do whatever is necessary to stamp out inflationary expectation. Market watchers take a raise this week as a given.
Nevertheless, many experts believe that Euribor will soon peak, and fall back to around 5.15% by the end of the year. That will still be high enough to stretch the finances of many Spanish mortgage borrowers, who are also struggling with rising Spanish inflation (5.1% in June), and a fast deteriorating economy.