30th of August 2006
iPropertyGROUP News
Euribor, interest rates and Spanish mortgages
Euribor rose from 3.4% in June 06 to 3.54% in July 06, a percentage increase in Euribor of 4%. Euribor began July on 3.507% and ended the month on 3.546%

Euribor - the rate used to calculate interest payments for most mortgages in Spain - is on the rise after several years of falling or stable rates. This increases the financing costs of buying Spanish property for those people who use a mortgage in Spain to do so.

In the course of 2005 Euribor rose from 2.312% in January to 2.783% by the end of December, a percentage increase of 23%. Since the beginning of 2006 Euribor has risen from 2.78% in December 05 to 3.54% in July 06 - a percentage increase of 27%. Euribor has now risen for 13 consecutive months, from a low of 2.103% in June 2005 to 3.54% today - a percentage increase of 68%. This means that mortgage repayments of variable rate mortgages taken out in Spain are now some 68% more expensive than a year ago.

The Spanish Mortgage Association (AHE) forecast Euribor to continue this upward trend in 2006, and predicted that Euribor could reach 3.3% by the end of the year. However, latest figures show that Euribor has already risen beyond this, leaving the AHE forecast in the dust.


Euribor from January 2005 to the present


What is Euribor, and how is it determined?
Euribor is a Euro system interbank lending rate determined by the key interest rate (on main refinancing operations) set by the European Central Bank (ECB). Basically, in terms that most people would understand, it is the interest rate that the banks used to lend to eachother, and it is calculated by adding a small risk-premium to the base rate set by the ECB. So when the base rate goes up, so does Euribor, which in turn pushes up the variable mortgage interest rates in the Euro-zone. Most Spanish mortgages with variable rates are calculated as Euribor + X%, where X is normally anything between 0.75% and 2%.

The Euribor average for April was 3.308%, though this figure still needs to be confirmed by the Bank of Spain before mortgage lenders can start using it to determine mortgage payments. Euribor is now at it's highest level since Septmber 2002, and the financial markets expect it to rise to 3.75% at the end of 2006, and 4% by April 2007.

The current base rate is 2.50%. The Governing Council of the ECB, through its President Jean Claude Trichet, has sent strong signals that rates will continue to rise in 2006, in response to inflationary fears.

To check the latest Euro system base rates used to determine Euribor

http://www.ecb.int/stats/monetary/rates/html/index.en.html

Where US interest rates go, sooner or later, EU interest rates tend to follow. On January 31st the Fed raised the base rate by 25 basis points to 4.5%.



Source: Spanish Property Insight