MADRID – The sharp rise in the Euribor* is putting extra pressure on families with mortgages. Inflation has already made their lives much more expensive. For example, groceries and energy costs are more expensive, and now also for their variable mortgage.
According to the banking sector, between 20-25% of the loans are good because they were taken out at a fixed interest rate. Moreover, it often concerns old operations in which a large part of the loan has already been repaid. In many cases, the Euribor was higher at closing than it is now.
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The greatest vulnerability would arise for mortgages concluded at variable interest rates in the past 5 years and the beginning of 2022, as hardly anything is written off on the principal here, as the highest amount of applied interest is mainly paid in the early years.
Banks are therefore most concerned about almost one million transactions (988,489) involving €82.2 billion in loans. These represent approximately 16% of the outstanding mortgage balance, according to estimates from various financial sources.
The sources consulted consider the estimate to be conservative because it excludes mixed loans whose fixed interest rates become variable before six years have elapsed and their revision will coincide with interest rate hikes. Between 2017 and 2021 alone, such mortgages were signed for an additional €51.54 billion.
Almost 3,000 euros more
The escalation of the Euribor means that an average mortgage of €145,000, granted for a term of 24 years and with a difference of 0.92% on the Euribor, shows an increase of €202 per month (€2,400 per year). The Euribor was still -0.502% in December and is now at 2.5%.
If Euribor reaches 3%, as various analysis bureaus predict, it will cost someone with an average mortgage an extra €2,981 per year. Not everyone can afford that, especially when much more money has to be spent on basic purchases than before.
The Bank of Spain and the European Central Bank (ECB) are cautious in their messages and all financial entities want to avoid mortgage alarmism as much as possible. One reason is that the mortgage is the last debt someone would fail to pay, the statistics show. Mortgage defaults peaked at 6% in 2013 after the property crash and when total credit delinquency was 13.6%. Today it is less than half.
“If the mortgage or rent takes up 30% of your income, that is already a problem that you might start to worry about. These households are at greater risk,” said Eduardo Areilza, of financial consultancy Alvarez & Marsal in El Economista.
The potential group most vulnerable are those who have already had to apply for deferrals during the pandemic. “The customer who had a payment deferral at the time now has a financial vulnerability that is higher than the average once that deferral has ended. This concerns 9% of the defaults. On average, the sector has 3%, so three times more for the most deprived population,” added Areilza.
“What we need to see from the industry is how we can help and find a case-by-case solution for those people who have a problem,” CaixaBank CEO Gonzalo Gortázar acknowledged at a forum hosted by elEconomista.es. His colleagues at Sabadell and Unicaja chose to reissue the moratoriums to offer outings to families.
*What is the Euribor rate?
Euribor is the abbreviation of Euro Interbank Offered Rate. It is the interest at which (primary) European banks lend each other. The Euribor rate is the comparison rate for the money market. The money market partly determines the level of mortgage interest. The Euribor is therefore a good indicator for short-term mortgage interest (fixed-interest period for a maximum of 2 years). The Euribor rate is used for the mortgage rate forecast. Lenders calculate a surcharge to determine the rates.