That 12-month Euribor it spiked in June, exceeding 1% for several days, a maximum not seen in almost a decade. And that’s how it happened Monthly average is above 0.8% compared to 0.287% in May and -0.484% just a year ago. Euribor’s uptrend has accelerated as the market is already pricing in a 25 basis point rate hike in July. European Central Bank (ECB) President Christine Lagarde reiterated on Tuesday that September’s rise could be stronger to stabilize “undesirably” high inflation.
The change in direction in ECB monetary policy has pushed bond yields higher and put pressure on the interbank market, boosting Euribor, which returned to positive territory in April for the first time in more than six years. Since then, the indicator has been rising almost continuously, which has led to a trend reversal in the mortgage market.
On the one hand the variable mortgages already granted become significantly more expensive. The monthly installment of an average loan of 150,000 euros over 25 years with a 1% difference to Euribor increases from 533 euros to 621 euros, which means paying 88 euros more per month and 1,056 euros more per year.
“Euribor has historically never risen so much in such a short period of time, but we are also experiencing a macroeconomic emergency,” explains Simone Colombelli, Mortgage Director at iAhorro. In fact, the war in Ukraine is now four months old, with rising tensions between Russia and the West and the drumbeats of an economic recession on the horizon of rising interest rates to curb inflation.
On the other hand, the strategy of financial institutions made a 180 degree turn. Banks have generally lowered interest rates Variable mortgages to raise attitude and benefit from the increase in Euribor. The spreads added to Euribor are already down 0.8% for the likes of Evo Banco, Pibank, Ibercaja, BBVA and ING.
In return, the industry increases the prices of fixed-rate mortgages. Here the adjustments are being made step by step, but have intensified so much in recent weeks that offers of less than 2% effective annual interest have already disappeared. Not so long ago you could find rates of around 1.5% APR. Now at least seven banks (Banco Santander, Sabadell, ING, Bankinter, Abanca, MyInvestor and Coinc) have rates exceeding 3% APR.
“The expectation that the ECB’s deposit rate will rise to 2% by the end of 2023 acts as a magnet for the 12-month Euribor, which will inexorably approach this number with each passing day,” says Ignasi Viladesau, Director of Investments at MyInvestor.
At Roams, a digital personal finance advisor, they believe that with Euribor rising, more people are choosing to switch to a fixed-rate mortgage. “In March 2020, fixed-rate mortgages outperformed adjustable-rate mortgages for the first time, a trend that far from reversed but consolidated and finally got going in January 2021,” they point out. In April, just as Euribor turned positive for the first time since 2016, the fixed-rate mortgage company posted a new historic high, accounting for 75.3% of the total, according to the latest statistics data.
In Roams, they believe that the surge in consumer demand for fixed-rate mortgages has caused banks to make this type of loan more expensive, as they now prefer adjustable-rate loans. However, rising prices (BBVA, Bankinter, MyInvestor and Ibercaja have almost doubled rates since the beginning of the year) may gradually dampen preference for fixed-rate mortgages. “It’s possible that before Euribor spirals out of control, we may have the last chance to get fixed-rate mortgages at a reasonable rate that some companies are still offering,” they conclude.
Cajasiete and Cajamar have even eliminated this type of product from their offer. Other companies such as Banca March, Cajasur and Kutxabank do not publish the conditions of their fixed-rate mortgages on the Internet.
Euribor performance has beaten many of the forecasts that put it below 1% by the end of 2022. In its latest quarterly strategy report, Bankinter’s analytics department updated forecasts and now forecast the index to end the year at 1.90% after 12 months. He estimates that it will reach 2.20% in 2023 and 2% in 2024. It is worth remembering that in 2008 Euribor reached historic highs of over 5%.