The Euribor gives mortgage holders a little respite after twenty months of increases

2023-08-31 18:45:59

BarcelonaThe 12-month Euríbor, the benchmark interest rate for most variable-rate mortgages in Spain, fell slightly this August, breaking the upward trend for the first time since December 2021 and, by extension, slows the rise in bank loans. This increase in the cost of loans over the last year has been noticed in the mortgage market, which in June suffered a decline again in Catalonia.

Evolution of the Euribor

Monthly average in percentage

The Euribor, therefore, will have closed August at 4.073% on average, according to calculations by Europa Press – pending final confirmation from the Bank of Spain–, compared to 4.149% on average in July. Despite the slight drop, the figure contrasts with those of recent years, when the indicator was in negative territory between February 2016 and March last year, and bottomed out in January 2021, with a monthly average of -0.505%. Compared to a year ago, the rate has risen by 2.824 points, from 1.249%.

This increase compared to a year ago means that mortgages updated with the August Euribor will suffer significant increases in fees. For example, the monthly installment of a variable mortgage of 150,000 euros for thirty years and an interest with a differential of 0.99 points compared to the Euribor would go from 572 to 810 euros.

Despite serving as a reference for the loans they give to their customers, in reality the Euribor is the interest rate at which the main European banks lend money to each other. The sharp rises in Euribor, however, follow the trend of basic interest rates in the euro zone, set by the European Central Bank. In the last year, the ECB’s monetary policy has focused on curbing inflation, which has soared since the beginning of the war in Ukraine, which has materialized in increases in basic interest rates – which charge commercial banks to leave them money – from 0% to 4.25% between June 2022 and now.

Volume of money lent in mortgages in Catalonia

Amount of new mortgages taken out for the purchase of housing in Catalonia. Monthly data in millions of euros

With this increase, what the ECB seeks – following in the wake of the Federal Reserve, the American central bank – is to make access to credit more expensive for companies and families and, therefore, to cool consumption and investment, which leads to a fall in prices, but also to a slowdown in the economy which, if sustained, may even lead to a recession and an increase in unemployment.

More rate hikes

Last week both ECB President Christine Lagarde and Federal Reserve Chairman Jerome Powell insisted that the fight against inflation is the central priority of the two institutions, even if it comes at the cost of reducing economic activity and moderate job creation. The two leaders warned that new rate hikes in the US and Europe should be expected for the rest of the year, but they also pointed out that the hikes will be more moderate than in recent months and that, in Powell’s words, they will make the decisions “with caution” as prices have shown signs of moderation for months.

These statements anticipate “at least a maintenance, if not a rise, in interest rates” this fall, according to Estefanía González, spokesperson for financial broker Kelisto, which “will have a direct impact on the Euríbor”. Despite this, in a statement, the Association of Financial Users (Asufin) pointed out this Thursday that the ECB’s incentives to continue increasing the price of money are “increasingly small” and predicted that the ECB will keep rates at “historically high levels”, but no further large increases.

The mortgage market continues to cool

With the increase in the most common rate of interest for mortgages in Spain, the market has cooled, as corroborated by the most recent data on the contracting of this type of loan, corresponding to last June and published this Thursday by the National Institute of Statistics (INE). In Catalonia, 5,336 mortgages were taken out for the purchase of housing, 7.3% less than in May and 23.1% less than in June 2022. By amount, these loans represented a capital of more than 858 million euros, almost 7% less than a month earlier and 24.1% lower than twelve months ago.

Conversely, in Spain as a whole the mortgage market experienced a slight improvement, with an increase of 1.6% in the amount granted to customers and of 0.2% in the total number of contracts signed between entities and their clients. Despite this, in both areas the figures for June remain more than 21% below the levels of the same month last year.