The recent dramatic fall in Euribor is unlikely to resuscitate the comatose Spanish property market because lenders have raised the risk premiums they charge in anticipation of higher default rates, according to a new report from the Fundación Cajamar, part of the Cajamar savings bank.
Euribor (12 month) is the interest rate most commonly used to calculate mortgage payments in Spain. It is the interest rate that banks in the Euro Zone use to lend to each other, and is derived from the base rate set by the European Central Bank (ECB).
“It is no longer a question of the cost of financing, but rather the greater credit risk attributed to anything related to the construction sector,” explains the report.
Compensating for rising default rates will be a primary objective for banks in 2009, argues the report. As a result, the report argues, it is quite possible that residential mortgage lending will continue to decline in the coming months.
The report underlines the fact that the collapse in residential construction has not been compensated by an increase in public works.
“The situation that the residential construction sector finds itself in is very worrying, and there are no signs that it will stabilise soon,” says the report, which calls for “urgent” intervention by the government.