Mortgages Increased by 66%, in Spain, in One Year, Due to the Rise in the Euribor Rate

The Euribor closed August at 4.073%, well above the 1.249% of a year ago, but giving a small truce, as it is the first fall in 20 months. However, this small decrease will not lead to lower mortgage rates, and those who have to review their loans in August will see their installments rise.

This rate has been rising since January 2022 and has done so with greater intensity since the European Central Bank began a more restrictive monetary policy. Since the first rate increase (July 2022), mortgages have risen 66%.

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The signing of home mortgages plummeted by 22% in June

Data for June from the National Statistics Institute (INE) show that the average interest rate on new mortgages stood at 3.19%, the highest level since 2017. The rise has been dizzying in the last year. In July 2022, when the ECB began raising interest rates after eleven years, the average interest at the start of a mortgage was 1.92%. In these 12 months, the supervisor has raised the price of money at every meeting, i.e. 9 consecutive hikes, which have made mortgages even more expensive.

These advances in the interest rate show how the more restrictive monetary policy is already being transferred to loans and credits. In fact, the ECB is already finding that lending is tightening. In June, mortgage signings in Spain fell by 21.9% compared to the same month last year, to 33,478 loans, the lowest figure for a June since 2020.

The main reason for this rise is due to the rapid advance of the Euribor. However, it is the fixed mortgages, those that always have the same installment, that have increased their price the most. In June, the average interest on these loans rose to 3.45%, i.e. 78.7% more expensive than 12 months ago, when the average interest rate at the beginning was 1.93%.

Variable-rate mortgages, which also include mixed mortgages, which have surged in recent months due to the rise in the Euribor, have increased in price by 51%. In June, this product registered an average interest rate at the beginning of 2.84% compared to 1.88% in July 2022.

Although the rise in the Euribor has a greater impact on variable mortgages, fixed mortgages are 21.5% more expensive

That is to say, the index affects mortgages already constituted because mortgagors will have to pay more monthly installments. However, it is different for new loans. Banks have changed their commercial strategy with mortgages in the last twelve months. In this way, they have increased the price of fixed mortgages, as they are attracting those who are looking for a loan, while they have lowered the price of variable mortgages to make them more attractive.

INE data show that 60% of new mortgages signed in June were fixed-rate mortgages, compared to 40% of variable mortgages. These percentages are very similar to those of previous months, although from one month to the next, the number of variables has increased slightly because there are mixed mortgages.

Other data to highlight is that there are more and more renegotiations of mortgages. Nadia Calviño, First Vice-President and Minister of Economic Affairs pointed out that beyond the Code of Good Practices, the conditions of 29,000 mortgages were being renegotiated. However, it should be borne in mind that the average interest rate at which this is being done, according to data from the Bank of Spain, is 4.06%.

The total number of mortgages with changes in their conditions registered in the property registries was 11,176, 24.9% less than in June 2022. Looking at the type of change in conditions, in June there were 8,633 novations (or modifications produced with the same financial institution), with an annual decrease of 30.6%. On the other hand, the number of operations that change entity (subrogations to the creditor) increased by 8.6%, while the number of mortgages in which the holder of the mortgaged property changes (subrogations to the debtor) fell by 9.7%.

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(Featured image by AlexanderStein via Pixabay)

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First published in EL INDEPENDIENTE. A third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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