Concerns for Spanish homeowners with a variable mortgage

by Lorraine Williamson
variable mortgage

MADRID – Rising rates are causing more and more Spaniards who have taken out a variable rate mortgage to worry about the amount of their monthly rate and whether they will be able to pay it in the coming months. 

Those concerns are shared by millions of people in the eurozone who are anticipating a series of aggressive rate hikes by the European Central Bank in response to rampant inflation. An increasing part of their budget is already being consumed by higher energy and food prices. 

Managing the resulting discontent is an urgent task for political leaders. It is also a possible deal breaker for those facing elections next year, such as Pedro Sánchez, Spain’s socialist prime minister. His government is already pressuring banks to provide aid. 

Vivid memories of traumatic crisis 

In Spain, fears have been fueled in part by relatively fresh memories of the traumatic crisis that began after the housing bubble burst at the end of 2007. This resulted in hundreds of thousands of evictions, a financial sector collapse and the destruction of confidence in banks. 

Three quarters have a variable mortgage 

According to the Spanish Bank, about three-quarters of mortgage holders in Spain have a variable rate contract. This contract is usually concluded for the duration of the loan. The share of flexible-rate mortgages is equally high in neighbouring Portugal. But it is much lower in France and Germany, where fixed-rate contracts are the norm. 


Although the ECB has already raised its key interest rate by 2 percentage points this year – and is expected to raise borrowing costs by another 0.5 percentage point by mid-December – the effect on Spanish homeowners is not immediately noticeable. Most variable mortgages are linked to the 12-month Euribor. That is an interbank rate that reflects where the markets think ECB rates are going. Plus a margin is based on the borrower’s circumstances. But loan payments are generally only adjusted once a year. 

Related post: Euribor rate rise puts pressure on 16% of households with mortgages 

Cogesa Expats

The worst is yet to come, experts in the Spanish housing market say. The biggest shocks will be those whose last adjustment was towards the end of 2021. Then the Euribor was -0.5%. At the end of October, Euribor closed at 2.6%, as the markets estimate that the ECB will continue to raise interest rates from the current level of 1.5%. As a result, mortgage payments will increase by more than €200 per month in the coming weeks from €636 to €850. This is for a household with an average mortgage of €145,000, a remaining term of 20 years and a standard rate of Euribor plus 1%. 

Stressed households

The Bank of Spain said last month that a 3 percentage point rise in interest rates would increase the number of stressed households – who spend more than 40% of their income on debt payments – by 400,000 to one in seven. 

The Spanish Ministry of Economy is in talks with the banks on how to reduce the impact of higher rates. A proposal is expected “in the coming weeks,” a ministry official said. Banks want restrictions on who qualifies. 

Manuel Pardos, president of the consumer advocacy group ADICAE warned that the criteria for relief have been so strict in the past that they “forced borrowers to be virtually destitute.” 

Crisis also affects the middle class

Banks, for their part, insist on temporarily deferring interest payments entirely. This is then added to the amount owed at the end of the loan. Another option would be to extend the term of mortgages to reduce monthly charges. However, ADICAE calculates that extending the average Spanish mortgage by five years would add €6,700 to the total cost of interest. 

Spain’s minister and deputy prime minister, Yolanda Díaz, said last month that the banks were not bidding enough given the huge quarterly profits they all reported. She also pointed out that this crisis affects not only the most vulnerable but also the middle class. 

The Bank of Spain estimates that only 3.9% of all consumer debt has “reasonable doubt” that it will ever be fully repaid. That percentage is a long way from the peak of 13.6% in 2013. No matter how big the financial problems are, people are often the last to stop paying home loans. 

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