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Euribor down, mortgages cheaper, lending collapses

A summary of the Latest Euribor and Spanish mortgage news

Euribor (12 months), the interest rate typically used to calculate mortgage repayments in Spain, fell to 1.678pc in February, leaving it 2.1pc lower than the same time last year.

This is the first time that annualised Euribor has turned negative in 19 months. As a result, repayments on the average 25-year, €150,000-mortgage resetting now will go down by around €36/year.

This time last year Euribor was still rising fast as the European Central Bank (ECB) tightened monetary conditions. But Euribor has been on a downward trend since August last year and shows no sign of changing direction, as you can see from the chart above.

Rates will stay low whilst the ECB keeps up it’s unlimited lending policy, giving banks 3-year financing in return for dubious collateral.

Unfortunately, this does not mean cheap credit for mortgage borrowers. Quite the opposite. When banks can only get short-term (3-year) financing, they avoid lending to house-buyers for 25 years. Partly as a consequence, new mortgage lending in Spain has collapsed (see chart below), down 32.6pc in 2011 (to 409,337) – the biggest annual fall since the crisis began – according to figures from the National Statistics Institute (INE).

The overall value of new mortgage lending fell 35.5pc to €45.8 billion, and the average mortgage loan fell 4.3pc to €111,950, at an average interest rate of 4.35pc, up 11.54pc on 2010.

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