Sixth consecutive drop and fourth record low in a row so far this year. What until not long ago would have seemed impossible, is now common in the Euribor. The index to which almost all variable mortgages in Spain are referenced closes November at -0.48%, that is, two basic points less than the previous month, the lowest level of the entire series, in the absence of data from this monday. The consequence is the lowering of both the new mortgage loans and the old ones whose revision touches now, since the variation with respect to the level of the Euribor of a year ago is negative. In the short term, experts do not see any rise, although in the medium term, if the economic situation shows signs of a solid recovery, a stealthy comeback could begin.
If at the beginning of the coronavirus crisis the Euribor rose sharply, reaching -0.081% in May (a level not seen since December 2016), the subsequent crash was resounding: -0.147 in June, -0.279% in July, -0.359% in August, -0.415 in September, and -0.466% in October. After the new fall in November, and since the Euribor is more than two tenths of a percentage point below the level of 12 months ago, a variable mortgage of 150,000 euros over 30 years, whose interest rate is the Euribor plus 0, 99% (one of the most common differentials), will have a monthly fee of 450.60 euros compared to 463.69 euros last year. The annual savings, until the next revision, will be 157.08 euros, according to calculations by the banking comparator iAhorro.
The conditions that favor such a low price of the variable mortgage index have not disappeared from the map. “It was expected that the Euribor would rise in recent weeks given the recent optimism about the development of vaccines against covid and better growth forecasts,” admits Joaquín Robles, analyst at financial broker XTB. However, in a situation still dominated by the second wave of contagions and with the aim of stimulating an economy that has been severely affected by the health crisis, “the European Central Bank (ECB) continues with its purchase of assets and its round of liquidity, offering very advantageous bank loans”, emphasizes Robles. Which results in an excess of liquidity for which there is not enough demand. In this way, by representing the interest rate at which banks lend money to each other, the Euribor reflects the consequent scarcity of operations in the interbank market.
Inflation as a sign
Of course, Robles believes that the index has already bottomed out, since the interest rate that banks pay the ECB for depositing funds in their coffers is 0.50%. If the Euribor fell below this threshold, the paradox would be that the entities would disburse more to lend liquidity to each other than to leave it in a place that offers them more guarantees, that is, the entity chaired by Christine Lagarde. An eventuality that, however, the director of Mortgages at iAhorro, Simone Colombelli, does not completely rule out, although he calls it “atypical”. In any case, “the recovery does not seem like it will be in the short term”, explains this expert, who predicts: “The Euribor may continue to be negative for three years, because although we are in a recovery context, the index will take longer to return to go up and change sign”.
To determine the evolution of the Euribor, Robles suggests looking at inflation. “It is one of the most important parameters on which the ECB’s monetary policy is based,” says this financial analyst. In Europe it is at 0.3% and it is having a hard time raising it around the objective of the European Commission —that apparently unattainable 2%—, despite the fact that, according to economic theory, the increase in the money supply should lead to inflationary pressure. But therein lies one of the keys. “The evolution of short-term inflation can condition the monetary policy of the EU and, from there, the Euribor,” says Robles. On the contrary, if, as everything indicates, the ECB deepens its monetary policy, “we are going to see the Euribor trading close to its historical lows, at least this end of the year and the beginning of next year,” predicts Robles. Then, if a gradual recovery begins, the index may “increment” towards the zero level, “but of course the short-term forecast is for a plateau below -0.40%”.
Subrogate to improve conditions
Not only do variable mortgages enjoy low rates thanks to the rock-bottom Euribor rate, but the new war being waged between banks to have the most competitive fixed mortgage loans offers an exceptionally favorable scenario for their clients. “In recent months we have seen how entities that previously did not have fixed-rate mortgages have now added them to their offer,” Colombelli points out. This is the case of ING, EVO Banco and MyInvestor, among others.
The offer meets the demand, since in August the fixed mortgages that were contracted were almost the same number as the variables, according to the latest data from the INE. A sign that “users seek in the current fixed rates, more similar to the variables that we saw in the market a few years ago, tranquility and stability, in a context of economic uncertainty”, interpret from iAhorro.
“Despite the fact that the end of the year is a period without major movements in commercial offers, the key is always in the negotiation to obtain the best conditions. The banks are also offering more bonuses that allow them to be even more competitive”, underlines Colombelli. In this sense, subrogation —that is, the transfer of a mortgage from one entity to another— can be very interesting, since, in order to attract clients, the receiving bank will be willing to improve the original conditions of the loan. “If 10 years ago the average rate at which mortgages were signed was around 4%, it is now possible to get fixed rates at 1.5% and variable rates of Euribor plus 0.75%”, explains Colombelli. “If we have bought a house in the last decade, we are facing a spectacular moment to subrogate”, he concludes.