Euribor (12 months) – the interest rate normally used to calculate mortgage payments in Spain – fell to 5.323% in August, the first time Euribor has fallen since February this year.

Despite the slight decrease in August, Euribor is still just shy of its all time high of 5.393% in July.

And despite last month’s fall, Euribor is still 14% higher than it was a year ago, which means there will be no immediate relief for borrowers with variable rate mortgages that reset this month. Their mortgage payments will continue to rise.

A typical borrower with an annually resetting 142,000 Euro mortgage at 26 years with a rate of Euribor +0.5% will see their monthly repayments rise by 56 Euros, or 670 Euros per year.

The European Central Bank shows no sign of raising interest rates again this year, so the market expects Euribor to decrease slightly in the coming months, falling to just above 5% at year end.

But with the credit crunch still rocking the financial system, a further rise in Euribor cannot be ruled out. And even if Euribor does fall, Spanish lenders will continue to restrict mortgage lending, tighten their lending criteria, and charge higher fees. That will continue to depress the residential property market.