What does the rising Euribor mean for mortgage loans in Spain?

After months in negative territory and registering a historic low in December, the 12-month Euribor inched up in March to reach its highest level since June 2020. While the interest rate used as a benchmark for mortgage loans still sits below zero, many analysts believe that we will see a return to positive rates this spring. So, what are the implications of a rising Euribor for mortgage loans in Spain?

Rising in Euribor in March

The Euribor ended March at -0.237% for its 12-month rate, up from -0.335%. The latest rise was its third uptick in a row after rock-bottom levels last December. Behind the steady increases lies growing uncertainty over the war in Ukraine and its subsequent pressure on inflation through the world.

Inflation soared to 9.8% in Spain in March on the back of rising energy and living costs. The Eurozone also experienced a surge in inflation, which ended last year at 7.5% in the economic area.

Raising interest rates is a classic monetary policy response to escalating inflation and market observers believe the European Central Bank will increase rates in the near future.

“We can see that a return to above-zero rates for the Euribor – last seen in 2016 – is imminent,” explains Katherine Walkerdine, a founding partner at Mortgage Direct. “We will be monitoring the market closely, as we always do, and checking which banks are offering the best variable rate margins and if fixed rates are available on a case-by-case basis.”

Implications of a higher Euribor for variable-rate mortgage loans in Spain

Mortgage holders most affected by a rise in interest rates are those who have a variable-rate loan. They account for around three quarters of the market in Spain.

Homeowners whose mortgage rates were revised in March will already have noticed the upward shift in rates. For the average loan, the latest uptick in the Euribor means an extra €16 a month on their mortgage payments, around €200 a year.

However, there is an upside to a higher Euribor for those applying for mortgage loans now. In the face of rising rates, banks are launching more competitive deals for variable-rate mortgages.

Implications of a higher Euribor for fixed-rate mortgage loans in Spain

There are clearly no changes to any mortgages where the interest rate is fixed. The popularity of fixed-rate loans in Spain skyrocketed last year and in January, they made up over 70% of new mortgage loans for the first time ever.

The impact will, nonetheless, be felt by those looking for a new fixed-rate mortgage. In response to a rising Euribor, banks are currently increasing the rate they offer for this type of loan. However, as Walkerdine points out, there are significant differences in the increases from bank to bank.

Implications of a higher Euribor for non-resident loans in Spain

It’s worth noting that due to changes resulting from the Mortgage Law of 2019, fixed rates are less widely available to non-residents not earning in euros. It’s therefore fair to say that a much greater percentage of non-residents will suffer from the increasing Euribor compared to residents, simply because they have far fewer fixed rate options available to them.