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The abrupt rise in Euribor in June caused mortgage prices to rise the most since 2006

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The 12-month Euribor ended June with the highest rise in history in a single month. It has fallen from 0.287 points in May to an average of 0.852. The jump is half a point, something that had not happened since this indicator came into effect in 1999. Behind the rise is the perception and then an official announcement that the European Central Bank will hike official interest rates in July. Something that is likely to be repeated in September, which will take the price of money in the Eurozone to levels not seen in the past six years.

The Euribor (an acronym that comes from Euro Interbank Offered Rate) is actually the interest rate at which a group of banks in the Eurozone lend money to each other. For this reason, it takes into account the current and future interests that the ECB will offer. Its importance in Spain is that this 12-month indicator (ie what one bank lends to another to repay in a year’s time) is the one used in most variable-rate mortgages to determine their evolution. These loans were the majority in Spain until recently, when fixed loans have skyrocketed as a result of the pandemic and inflation, which is why they make up the majority of living mortgages in the country.

Typically, a variable mortgage is reviewed once a year. And since the difference doesn’t usually move, the change in Euribor compared to a year ago decides whether the next 12 letters (until a new revision is due) become more expensive or cheaper. Even in this case, in which the indicator came out of the red last year, the jump is more than remarkable: it exceeds 1.3 percentage points. Translated into real terms, this means that all those borrowers who recalculate the price in June will have to pay significantly more. In fact, since October 2006, almost 16 years ago, there had not been such a large annual fluctuation.

Translated into what it means for an average mortgage (137,921 euros, according to the INE’s 2021 average) repaid in 24 years and at a price of Euribor plus one point, this change would mean dropping the letter from 509 to 593 euros to raise. That is, a letter of 84 euros more per month, which means that in one year the payout that the lender has to make increases by more than 1,011 euros.

The prospects are not good. At the end of May, most analysts had not even expected that the Euribor would reach 0.8 percentage points by the end of the year. But inflation in Europe is proving to be more stubborn than expected and the ECB’s main mandate is to fight it to bring it to around 2% over the medium term. This has forced the banking regulator of the euro to make clear monetary policy announcements in the coming months. Asufin (Association of Financial Users) believes that Euribor could reach 1.5 points by the end of the year. This would result in an even higher price than this month for those checking their mortgage then, as the comparison is made to the last few months of 2021 when Euribor was at its historic lows. With a mortgage like the one described above, the cost increase in this case would be just under 130 euros per month, around 1,560 euros more per year.


Source elpais.com

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