Euribor, the rate normally used to calculate mortgage payments in Spain, plunged 90 basis points (a change of -21%) to 3.45% in December, bringing some relief to borrowers on annually resetting Spanish mortgages.
Euribor, which peaked at an all-time high of 5.384% as recently as September, has nosedived in response to the European Central Bank’s (ECB) steps to liquefy the Euro zone’s financial system. In just 3 months Euribor has dropped from 5.384% to 3.45%, a percentage fall of 35.5%.
The ECB has dropped interest rates from 4.25% at the beginning of October to 2.5% now, and expectations of further cuts are helping to drive down 12-month Euribor rates. Analysts expect the ECB to lower interest rates to 1.5% or even lower in the first quarter of 2009.
The latest fall in Euribor will make life easier for borrowers with annually resetting Spanish mortgages. Monthly repayments on a typical annually-resetting mortgage (150,000 Euros, 25 years, Euribor + 0.25%) will fall by 115 to 902 Euros a month – a saving of 1,380 Euros a year. This will provide some relief to hard-pressed borrowers, but still leaves mortgage repayments higher than they have been for most of the last decade.
Nevertheless, borrowers should realise that banks use every trick in the book to wriggle out of passing on lower borrowing costs. Banks typically wait until the previous month’s 12-month Euribor rate is published in the official state bulletin (Boletín Oficial del Estado, or BOE), which usually happens around the 20th of each month. Borrowers whose mortgages reset before that date will have the previous month’s Euribor rate applied to them, in this case November, which was 4.35%.