The mortgage trauma for the pocket of the Spanish continues to increase. The 12-month Euribor, the reference for variable-rate mortgages, stood today, Monday, February 27, at 3.68% in its daily price, its highest level since December 5, 2008.
In this way, and in the absence of only one data for the end of the month, the average for February months will be fixed at 3.53%, 20 points more than in January (3.33%) and 386 basic points more than twelve years ago, when it was still trading. in negative (-0.33%). In just 14 months, since December 2021, the index has broken the barrier of 400 basis points of escalation.
The cost of financing the purchase of a home-ownership has skyrocketed like never before since the euro has existed due to interest rate hikes from the central bank, the energy crisis and Russia’s war in Ukraine.
The European monetary authority, the one that has supported its conditions the least and later along with the Japanese, placed the official financing rate at 3% on February 2 and has confirmed that it will raise it to 3.5% on March 16 , with the possibility that it signals a new increase for May.
How much will the fees go up this month?
For a recently constituted 100,000 euro 25-year mortgage with a spread of one point, the fee to pay will rise from 355 euros to 546 euros this month, about 2,300 more euros per year. With the same conditions for a mortgage of 200,000 euros, the fee will go from 711 to 1,093 euros with this month’s review, about 4,600 euros more per year. If the loan is 300,000, the monthly letter will rise from 1,070 to 1,639 euros, around 6,800 euros per year.
There are factors such as the age of the mortgage that cushion the impact of the increase in interest. In fact, the average existing mortgage in Spain is around 82,000 euros and its outstanding term barely exceeds 8 years, according to data from the Spanish Mortgage Association (AHE). This figure contrasts with the average newly created mortgage, whose import amounts to 147,000 euros and a 25-year repayment period, according to the INE.
Why does it rise and how is the Euribor calculated?
The Euribor is the acronym for ‘Euro Interbank Offered Rate’, that is, the reference European interbank rate that measures interest at which large banks lend money to each other in the secondary market. The primary is the one that represents the central bank, the currency issuer. There are five main Euribor terms: one week, one month, three months, six months and twelve months. The latter two are commonly used as a reference for the cost of variable-rate mortgages, while the former are linked to corporate financing and other types of loans.
Its calculation is obtained daily from data from a panel of 24 large European banks, including the Spanish Santander, BBVA, Caixabank and Cecabank. In the past, it was the Reuters agency that was in charge of collecting the data from the banking survey among 57 entities, but the price manipulation scandals that occurred in investment banking in the United Kingdom forced the Euribor to be reformulated.
Now it is the European Monetary Markets Institute (EMMI) who makes sure to maintain the independence and rigor in the preparation of the Euribor in accordance with the regulations. Specifically, a hybrid methodology is used with 3 levels of data collection.
First, unsecured money market transactions with a minimum of €10 million. Second, money market maturities. Third, other types of comparable operations. In all cases, banks must provide real documentation that attests to that fact.
As it is a financial index, such as the Ibex 35 or the Treasury bond, its daily and monthly price may differ from the interest rates set by the ECB based on expectations of future movements. If, as is the case, the central bank indicates a rate orientation for its next meetings, the Euribor tends to adjust to those levels.
Conversely, if markets anticipate that key rates may start to be cut, the index will start trading at a discount. As of February 27, 2023, the 12-month Euribor is trading at 3.68% on a daily basis compared to 3% of the official ECB rate, although Lagarde has confirmed that she will raise rates in March to 3.5% and leaves the door open to an impossible rise in May.