New roof on the 12 month Euribor. The index of wholesale loans between banks and the reference of variable mortgages has been located today, Friday, February 17 at 3.572% in its daily price, its highest level since December 9, 2008. This is the sixth consecutive rise in a month in which the indicator has moved higher in 10 of the 13 trading sessions.
The novelty occurs in the monthly average. In the absence of 7 data to configure the definitive average, the upward spurt in February brings the average to 3.47%2 basis points above the 3.45% registered in December 2008 but still far from the 4.35% of November of that year.
For the first time so far in February, the year-on-year differential grows again with respect to the month prior to standing above 381 basis points, or 3.81 percentage points, a new record in the historical series. It is the sixth consecutive since in September 2022 he registered the first.
The review of mortgages with the change of the Euribor to 12 months year on year is the most common in Spanish mortgage loans. It is the one that will govern both the new variable-rate mortgages and the review of existing ones that have the new reference month in their contract.
Quotas will shoot up 53%
For a loan of 100,000 euros at 25 years of recent constitution, linked to the Euribor at 12 months plus one point (bank margin), the fee would go from 361 to 554 euros, about 2,300 euros or 53% more per year. With the same conditions and terms but with an amount of 200.000 euros, the monthly bill will go from 724 to 1,108 euros, which also means an increase in the price of the 53% or more than 4,600 euros per year.
The biggest hit in terms of the cost of financing will logically occur in the largest mortgages. For 500,000 euros, with the conditions outlined, the fee would go from 1,810 to 2,770 euros, an additional cost of 11,520 euros per year. He impact will be reduced according to the age of the mortgage due to the lower interest charge in each installment due to the French amortization system used in the Spanish market.
The Bank of Spain has warned of a slowdown in the sector and in the granting of mortgages as the real estate sector continues to cool down and financing hardens in all areas. Sales volumes are also dropping, as published today by ‘La Información’.
“He household indebtedness has continued to decline, as a reflection of the rise in interest rates on loans, the tightening of the concession criteria and a notable drop in demand for mortgages”, explains the BdE in its latest bulletin.
“With the slowdown in credit creation, money growth is slowing down rapidly as well, showing a marked decrease in its most liquid components, including demand deposits, offset only in part by a shift to time deposits”, points out the banking supervisor dependent on the ECB.
Rise to the range of 3.75%-4%
He 12 month Euribor began to rise just a year ago after more than five years in negative territory, an anomaly caused by the zero rate policy of the European Central Bank (ECB) under the presidency of Mario Draghi and whose objective was precisely to stimulate the economy and cause inflation in the face of the threat of antagonist: deflation.
The trend worsened in 2020 after the outbreak of the pandemic and the launch of massive debt purchase programs. The interbank index it marked its historical minimum in December 2021 at -0.51% but with the awakening of inflation at the end of that year, it began to rebound strongly due to the escalation in energy prices, a trend that accelerated after the start of Russia’s war on Ukraine.
On April 12, 2022, the Euribor traded positively for the first time since February 2016 and since then it has not stopped rising in line with interest rate expectations in the euro zone. The ECB raised official rates in July 2022 for the first time since the 2011 debt crisis and since then has undertaken four increases in the price of money: two of 75 basis points and another three of 50 basis points.
The President of the ECB, Christine Lagarde, He assured the last meeting on February 2 that he will raise the rates from 3% to 3.5% in March and hinted at the need for a further move higher at the May meeting that could take them to the range of 3.75-4%. It is towards that level that he is now heading. 12 month Euribors, which reflects the interest at which banks lend to each other in the secondary market and, therefore, its evolution is linked to ECB rates. Some ECB adviser like the German Isabel Schnabel they do not rule out higher levels even if inflation picks up and does not come down.