Interest rate hike link to mental illness found, but Spain enjoys more historic lows

Those already struggling to make ends meet have to fight even harder to pay their bills, and those in debt find themselves sinking further, researchers in the northern UK region, assisted by Nottingham University (England) have found.

Their study was based upon uncertainty as to whether the Bank of England plans to increase interest rates in May or maintain them at the current 0.5%.

Luckily for those with mortgages and loans in Spain, interest rates will not create negative effects on mental health for the foreseeable future: the Euribor is set to close April on yet another historic low, of -0.19%.

Variable-rate mortgages in Spain are only reviewed once a year, which takes a lot of the insecurity out of them and gives homeowners plenty of time to plan if the Eurozone interest rate shows signs of rising – this, and the high fees associated with fixed-rate mortgages, being the main reason that an overwhelming majority of home loans are variable-rate versions, at the customer's request.

Now that interest rates in the countries using the common currency have been in negative figures for two years and two months, little margin exists for mortgage repayments to fall, but the difference between rates expected for the end of April 2018 and the same date a year ago – when the Euribor fell to -0.119% - is still a saving of €38.16 on the average home loan.

Taking a €100,000 mortgage with a repayment term of 25 years, depending upon the lender and contract terms, the monthly repayment a year ago would have dropped to €371.51 if the review date was at the end of April or beginning of May, and this would now fall to €368.33 – a difference of €3.18 a month.

Now having concluded the 26^th consecutive month with the Euribor below zero, more and more homeowners are opting for fixed-rate mortgages to secure themselves in case the trend changes, but given the likelihood it will continue to fall or at least remain stable, and customers have a year from each review to monitor trends, these are still in a minority – 37.6%, having risen by 8.2%, compared with 62.4% of mortgages being on variable rates.

The annual review system in Spain provides far greater security than variable-rate loans in the UK, for example, where payments change every month in accordance with interest rates, meaning a sudden hike could leave owners on a tight budget caught out.

Property market researchers warn that the medium term could, however, see the European Central Bank (BCE) opting to increase interest rates again, and Spain's economy minister Ramón Escolano warned earlier this week that homeowners with a variable-rate mortgage need to be aware that the future could bring a 'normalisation' in the Euribor and a consequent increase in monthly repayments, given that the rates falling into negative is a strategy to boost growth in the Eurozone.

Given the evolution of the Euribor over the years, it does not appear likely that any increase will be sudden – rises are likely to be very gradual and by no more than 0.1% or 0.2% at a time – and are not expected this year.

Variable-rate mortgage-holders can carry on enjoying low payments for a while, but should keep a close eye on differences in the Euribor each month and be ready to apply a fixed rate if the current situation reverses.