Mortgages in Spain down again: Euribor drops to historic low

Experts believe the rate, known as the Euribor, will remain below zero for the whole of 2018.

A slight rise in January, to -0.189%, proved temporary and the rate is once again at an historic low.

Based upon a 20-year mortgage of €120,000 on a 'Euribor +1%' contract – the average type of home loan in Spain - this means an annual saving of €54.12, or €4.51 a month.

The Euribor went into minus figures in February 2016 for the first time in history in an attempt to help the Eurozone recover from the ongoing recession, and has not gone above 0% since then.

Analyst Joaquín Robles from XTB says until the Eurozone reaches its inflation objective of 2%, there is no chance the Euribor will rise.

“In September, the Central European Bank (BCE) will decide again whether or not to continue with its current debt-buying programme or whether prolong it in line with the evolution of inflation,” Robles explains.

“However, the current long-term previsions lead us to believe we will not see an increase in interest ratest until at least the middle of 2019, so we expect the Euribor to continue below zero for the whole of 2018.”

But Robles warns savers should not allow themselves to become confused by this situation, since the current length of a mortgage loan is typically 25 years, and the current price of money could well increase during this time.

“In the event that the economy continues to grow within the next five years, Eurozone interest rates could rise to up to 3%, which would lead to an increase on an average €100,000 mortgage payable over 25 years of about €3,000 a year, or €250 a month,” Robles explains.

Fortunately for Spanish mortgage holders, interest rate changes do not present a great deal of insecurity – unlike in the UK, where rate changes affect mortgage repayments from month to month, home loans in Spain are reviewed annually, on the anniversary of when they were taken out.

This means homeowners have a whole year to keep an eye on Euribor trends and, in the unlikely event that these look set to rocket over a short time – something that has not happened in a decade, when rates peaked at around 5.6% - they have time to make arrangements to change their loan to a fixed-rate version.

Given this, fixed-rate mortgages in Spain are rare, since they can often end up costing the homeowner far more money.

Good news for existing and future property owners in Spain is that they will not have to worry about their mortgage payments shooting up over 2018 and, if Robles' predictions about a rise to 3% in five years come true, they have several years ahead on their hands to monitor rate changes and act accordingly before their payments rise too much.

But the difference between the current Euribor rates and the highs of 10 years ago on the cited average mortgage of €120,000 over 20 years is roughly 50% of monthly payments, or around €300 to €400 a month depending upon the type of contract held.