The 12-month Euribor was unknown to a whole generation of retail mortgage holders who got into debt from 2012, after the euro crisis, the bank bailout in Spain and the famous ‘whatever it takes’ preached by Mario Draghi. A variable rate about which they had heard legends about its ferocity in the real estate boom from 2004 to 2008, but which did not budge, with an evolution tending to zero year after year or, even, negative from February 2016. But in January 2022 everything changed and its price began to climb day by day, month by month, until adding in this May 2023 the seventeenth consecutive monthly rise, 435 basis points (4.25 percentage points) above the minimum of December 2021 in – 0.502%.
With only three business days to go before the official close of the monthly average, the 12-month Euribor averaged 3.846% in May, 9 basis points (0.09 percentage points more than in April) and its highest level since November 2008. In this way, except for a last-minute surprise, the interbank index will register its smallest month-on-month rise since March 2022. the annual highs that it set in March (3.97%) before the banking crisis in the US unleashed after the bankruptcy of Silicon Valley Bank and Signature Bank.
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At the gates of 4%
The 1-year Euribor price this Friday amounted to 3.955%, according to the measurement of the European Institute of Monetary Markets (EMMI, for its acronym in English) based on real loan data from a panel of 19 European banks, including , four Spaniards (Santander, BBVA, Caixabank, Cecabank), four French (BNP, Natixis, Société Générale, Credit Agricole), two Germans (Deutsche Bank, DZ), two Italians (Unicredito, Intesa San Paolo) and two British (Barclays , HSBC).
Its current evolution would lead it to cross the 4% barrier as soon as next week if it continues at the current rate. Despite the cooling of interest rate expectations in 2023 at the ECB due to disinflation, why are banks lending more expensively to each other? Traders are mainly pointing to pressures from core inflation – excluding energy and fresh food – which remains “too high” according to all governors and is prompting the central bank to raise rates again in June to anchor expectations of prices
The tension in the debt market due to the escalation of yields is also boosting the interest on loans, as well as the progressive restrictions on bank liquidity that the entities themselves are creating in the face of the new game scenario that the central banks are marking.
The latest two Fed and ECB surveys of banks point to the biggest tightening in a decade in financing conditions for households and businesses. Not only do they give more expensive credit, but also the amount is lower and the access standards are stricter. Banks are avoiding the risk of a possible rise in defaults due to the rise in rates and the slowdown.
The granting of mortgages in Spain has begun to decrease visibly, with double-digit falls in most of the autonomous communities, after a year with the Euribor on the rise. The upward revision of the cost of mortgage installments at a variable rate makes housing loans linked to this variable index more expensive by more than 50%.
For example, for a 30-year mortgage of 150,000 euros and a bank differential of 1% plus the Euribor that must review its interest rate in May, the increase in its monthly letter to the bank will amount to about 285 euros per month, that is , about 3,420 euros more per year. For this reason, the Bank of Spain calls for extreme vigilance over larger mortgage portfolios, which are more vulnerable, although it emphasizes that more than 25% of mortgage credit is now linked to fixed rates and, therefore, will not be affected by the increase in The Euribor.