Euribor above 3% for the first time since 2008

by Lorraine Williamson
Euribor above 3%

MADRID – The Euribor rose above 3% on Monday for the first time since December 2008. The main reference index for mortgages in the euro area thus anticipates the expectation of further increases in official interest rates. 

The European Central Bank (ECB) warned on Thursday. It then raised the ‘price’ of money to 2.5%. And its chairman, Christine Lagarde, announced more increases in the coming months. It will be at least 0.5 points at the meetings of the Governing Council of the ECB scheduled for February and March. 

Escalation Euribor 

Lagarde surprised experts with her determination to stick to the strategy used to fight inflation. The ECB expects inflation to normalise only “in 2025”. The main consequence of this for households in Spain is the escalation of the Euribor. It was still negative a year ago. 

This indicator is the reference against which the mortgage instalments are calculated (fixed or variable, with the addition of a difference). The already contracted mortgages at a variable rate based on the Euribor are also updated. In Spain, they are two-thirds of the total. 

Experts estimate that the Euribor could rise well above 3% in the coming months, the biggest increase since 2000. This level implies increases of €2,500 per year for an average mortgage with a variable rate of €145,000, at 24 years and with a difference of between 0.8% and 1%, again according to the INE. 

New loans are becoming more expensive 

It also makes new loans more expensive. “One in four buyers has been forced to halt the purchase process as mortgage terms are no longer attractive,” reports the real estate portal Fotocasa. 

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Variable mortgages are stimulated 

“The banks want to stimulate their variable mortgages because they hope to earn more money with it. That’s why they make their new fixed-rate mortgage loans more expensive to make them less attractive,” says Miquel Riera of comparison website HelpMyCash comparator in the newspaper ElDiario. He calculates that the interest on fixed mortgages could rise to about 4% or 5%.” 

The blow of the energy crisis and inflation to households is historic. Meanwhile, wages barely improve. And the ECB’s response does not make this situation any better, even though the eurozone as a whole has been in recession this winter. 

Tightening of monetary policy leaves scars 

Nobel Prize in Economics winner Joseph Stiglitz complained that central banks “in the name of controlling inflation have deliberately tried to induce a recession, or exacerbate it if it does. Worse still, the tightening of monetary policy today will leave permanent scars, while more thoughtful responses would work better and bring long-term benefits,” said Stiglitz. 

Most moderate inflation in the euro area 

The Spanish government has shown measures such as the gas cap, discounts on fuel or free public transport are effective. Headline inflation has fallen by 4 points since those measures, from 10.8% in July to 6.8% in November. Harmonised inflation in Spain is the most moderate in the euro area. 

Measures to limit the increase in mortgages 

And just a few weeks ago, the Spanish government responded to the ECB’s measures with a package of measures to limit the rise in mortgages and extend their conditions for those with incomes up to €29,400. 

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