Euribor – the interest rate predominantly used for Spanish mortgages – crept into positive territory for the first time in over six years, meaning higher mortgage payments at a time when the cost of living is rising across the board.
12-month Euribor came in at 0.021 in April, up from -0.232 in March, and the first time Euribor has been in the black since February 2016. In other words Euribor had been negative for 74 consecutive months up until April.
The chart above illustrates what an exceptional period of low interest rates we have lived through in the last decade or more, but the trend is now towards higher rates. Before interest rates fell to unprecedented lows in the aftermath of the 2008 financial crisis, rates of 5% or more were the norm. In the US 30-year fixed mortgage rates are already above 5%.
Why is Euribor rising?
Looking at Euribor over the last 2 years (next chart) you can see how quickly Euribor has moved from close to an all-time low in December 2021 (-0.502) to positive territory in April, a remarkable turnaround. Euribor is rising in the face of surging inflation (expected to come in at 7.5% for the Euro area in April) and expectations that the European Central Bank will raise base rates to head off inflation.
As a result of the April increase in Euribor , borrowers with annually resetting Spanish mortgages will see their mortgage payments rise by around €25.81 per month for a typical €120,000 loan with a 20 year term.
Euribor in positive territory for the first time in over six years is newsworth, but it doesn’t mean that mortgage borrowing is now expensive. Borrowing costs are still low by historical standards, just not as ridiculously low as they were a few months ago. It’s still a good time to get a mortgage, especially a fixed-rate loan against a background of high inflation.