The unstoppable rise of the Euribor – from negative in January to around 3% in November – is causing problems for many Spanish mortgage borrowers. Especially those who have taken out variable-rate mortgages in recent years are facing drastic increases in repayments. Consequently, the average mortgage has become much more expensive.
The average Euribor rose to 2.83% in November, the highest rate since December 2008. Consequently, this could make the average mortgage €242 a month more expensive.
Increase appears to be slowing down
Although the rise in Euribor seems to be slowing down, most analysts do not expect the reference rate for most loans in Spain to slow down in the short or medium term. For instance, iAhorro predicts that the 3% threshold could be reached and even exceeded by the end of the year. A diagnosis shared by Asufin, which expects the one-year Euribor to reach 3% in December.
Mortgage becomes more expensive
With the current Euribor, a household with an average mortgage (€150,000 for 30 years, variable rate and with a spread over Euribor of 1%) that was recently taken out will see monthly repayments rise from €449 a month to €691. That is €242 more per month, according to estimates by financial adviser iAhorro. The association of financial users Asufin, assumes a €162 increase for a €100,000 loan at 24 years with a difference of 1%.
However, not all variable-rate mortgages are affected in the same way. A large proportion of variable-rate mortgages in Spain were taken out years ago. Therefore, the interest burden is lower. In Spain, almost all mortgage borrowers pay interest annually according to the amount of the loan still to be paid. The larger the amount written off, the less weight the interest payment has. This means that the increase in repayments faced by these debtors due to Euribor is lower.
In any case, and in anticipation of the fact that some households could run into trouble due to the increase in their repayments, the government has agreed a mechanism with the major banks that allows the most vulnerable to defer part of their loan. An agreement that also facilitates changes from variable to fixed rates and early capital repayments.
Back to variable mortgages
Variable mortgages are back, despite increasingly unfavourable conditions for this type of loan. Mortgage loan statistics published by Spain’s statistics office INE on Wednesday confirm this. Variable-rate mortgages rose from 25% of loans in July to 32% in September, the highest percentage so far this year. And all indications are that this trend will continue to rise in the coming months, as the INE data reflect the latest movements of the Euribor.
The revival of variable mortgages, which were more common and traditionally the norm in Spain until two years ago, coincides with the disappearance of fixed-rate mortgages. Financial advisers such as iAhorro and consumer organisations such as Asufin point out that banks are making their fixed-rate mortgages more expensive now that Euribor has risen. iAhorro also points out that scarce fixed-rate mortgages can already reach 4%, more than one point above Euribor.
Sign of market slowdown
This change in the mortgage market comes at a time when there are increasingly clear signs of a market slowdown. In September this year, a total of 44,119 mortgages were formalised, 4% more than in the same month of 2021. But while the amount continued to rise, the pace is cooling. September was the second slowest month of growth this year, after April. “The slowdown heralded by most forecasts is starting to emerge,” says Ferran Font, director of research at Pisos.com.
In any case, it does not look like this slowdown will be enough to prevent 2022 from being the year with the highest number of mortgages signed since 2010. So far, 353,213 loans have been formalised, and are likely to rise to around 470,000 this year. However, these figures are still a far cry from the peak years of the property boom. At that time, more than a million mortgages were issued annually.