Mortgages go down by up to 50% following record fall in Euribor
Those people who are due to review their mortgage repayments will be very pleased with the latest figures for the Euribor (Euro Interbank Offered Rate) interest rate. The Euribor will close this month at 1.412% following the largest interannual fall ever in its history. This means that long term mortgages in Spain could go down by as much as 50%. In addition analysts believe that the Euro rate has not reached its lowest levels yet and could go down even further to 1.20%.
Just one year ago mortgage repayments were going up with the Euribor at almost 5.4% in July 2008 which is nearly 4 points higher than its current level. This increase meant that average mortgage repayments went up by as much as 900 euros in some cases. However, those that need to review their mortgage repayments this year are in for a pleasant surprise. The monthly quota for an average mortgage worth 150,000 euros over 25 years will go down from 957 euros to 629 euros which is 327 euros less – this translates as a saving of approximately 4000 euros a year.
Those who will benefit most from the fall in the Euribor are those paying long term mortgages. For example for those on 30 year mortgages will see their repayments drop by 38.4% – 341 euros a month less, those on 40 year mortgages will see their repayments fall by 45.1% – 367 euros a month less and those on 50 year mortgages will see their monthly quota fall by 50.1% – 389 euros a month less. The main benefactors from the fall in the euribor will be those who have bought their properties over the last few years. Those wanting to buy now still face difficulties in finding a mortgage lender and more expensive credit arrangements which mean that they will end up paying more than 1.5% interest.
However, estate agents and construction companies are still looking for ways of attracting new customers in a desperate bid to get rid of the ever growing surplus stock of houses and flats.
For example, yesterday the Comunidad de Madrid and the association of property promoters of Madrid agreed to reduce prices from between 10% and 50% in exchange for banks and building societies conceding 100% mortgages. Currently Santander bank, BBVA, Caja Madrid, La Caixa, Banco Popular, Banesto BBK, ING Direct and Bancaja have agreed to take part in the scheme.
La Caixa, also reached another agreement with the Spanish Association of Property Promoters to finance properties by 100% if estate agents cut prices by at least 20%. The association also signed a similar agreement with Santander bank last March.
Santiago Carbó, a professor in the University of Granada and a consultant for the Federal Reserve told El País that there will be another fall in interest rates this year.
He believes that ‘so far there are not any signs of a solid recovery in the EU although market conditions are improving slightly’. However, he does not believe that there are ‘risks of inflationary tendencies’ either.
Nevertheless there are those that believe that the Euríbor could continue its downward trend given that it is always above official interest rates. The lowest level experts believe it could fall to oscillate from between 1.20% and 1.30%.
It is still not clear how long it will remain at such a low level. The Chief Economist for Intermoney, José Carlos Díez, told El País that the European Central Bank could raise interest rates next year to around 2% to see how the market reacts