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Another Eurozone interest rate fall makes Spanish mortgages cheaper
03/03/2020
THE Eurozone interest rate has now marked its fourth anniversary in negative figures, meaning mortgages in Spain and other common-currency nations will continue to be low – in fact, the closing figure for February was the second-lowest in 14 months.
Spanish variable-rate mortgages are set according to the euro interest figure, or Euríbor, and unlike in the UK, are re-valued annually, not constantly; this means if the interest rate shows signs of possibly rising, homeowners have up to 12 months to plan and work out whether a fixed-rate loan would save them money.
It also means no fluctuation in monthly repayments, so a sudden, one-off spike in the Euríbor will not mean an unexpectedly expensive month.
For this reason, and especially as a fee applies to set up fixed-rate loans, the vast majority of mortgages in Spain are variable rate.
Luckily, in the past, the Euríbor has not changed dramatically and suddenly from year to year and any rises have been very gradual, meaning rearranging an existing mortgage has not had to be an emergency.
The Euríbor first dropped below zero in February 2016, something never seen before and which led some homeowners to question whether they would actually get a rebate on their repayments, or pay less than the capital due – but the answer was, of course not.
Banks tend to set their mortgage interest rates at the Euríbor plus a given percentage, which means their cost has nearly halved since 2007 and 2008 when they were at their peak.
At the beginning of 2019, it was feared the honeymoon may be over when the Euríbor started creeping above zero again, but at its highest since then it only reached -0.082%, in March, after which it started to drop, falling once again into negative in June.
And compared with late 2007 and early 2008 rates of around 5.3% - or even the 2% to 3% after 2002 when Spain first adopted the euro – few homeowners were truly panicking.
The Euríbor in the last 14 months, from January 2019 to February 2020 inclusive, was at its lowest in August when it dropped to -0.187%, and a steady climb started to reverse again in December, when 2019 closed with a rate of -0.135%.
As at the end of February, the Eurozone interest rate was -0.179%, and no plans are afoot for it to rise greatly any time soon.
BCE to keep euro interest below zero for a fifth year at least
The Central European Bank (BCE) has consciously kept the Euríbor low in the last few years in a bid to stimulate growth in the Eurozone, encourage home-buying, get young people onto the property ladder at a time of minimal or non-existent wage increases, and help start-ups and small businesses obtain affordable credit to be able to expand and create jobs.
It does mean interest on savings is either nothing or negligible, but those who rely on savings interest for their income have greater choices – they can put their money in deposits or plans outside the Eurozone if they wish, for example – whereas for mortgages, credit cards, personal and business loans taken out within the Eurozone, it is rarely possible to acquire these beyond the debtor's immediate national borders.
Four years ago, the Euríbor fell to -0.008%, which pleased homeowners whose mortgages were due for review that month or those taking out new property loans, but which they suspected would be merely a blip.
However, other than the first five months of 2019, it continued to drop, plunging briefly to a record low of -0.356% in August 2019.
Figures are taken for the close of the month, meaning by the last day of August, the rate was 'up' to -0.178%, but still the lowest seen all year.
Mortgages reviewed at the end of February or in March 2020 will now be 0.18 percentage points cheaper than they have been for the past year.
Financial experts predict at least another year of negative interest rates – partly due to the Coronavirus epidemic in Europe, and partly due to an excess of liquidity.
Joaquín Robles of XTB finance brokers says the BCE is concerned countries may have to tighten their belts if the Covid-19 outbreak has a negative impact on their economies – already, the EU as a bloc has lost an estimated €1bn from the sudden absence of tourists from China, and numerous major events have been cancelled, including the Mobile World Congress in Barcelona, even though this was called off because of exhibitors fearing the worst and pulling out rather than an actual health scare.
As for the excess of liquidity in the Eurozone, whilst at first it may appear that this would push interest rates up – to avoid too much money in circulation and resulting inflation – but according to Robles, with 'so much cash available', banks across the common currency area 'are not prepared to pay much to borrow it off each other'.
Robles adds that the BCE intends to keep to its pledge of not increasing Eurozone interest rates until its inflation targets, of just below 2%, have been achieved – even with its chairman Mario Draghi having come to the end of his term of office and being replaced by former International Monetary Fund (FMI) chairwoman Christine Lagarde.
Analysts at Dutch high-street bank Bankinter – which operates widely in Spain – predict the year 2020 will close with a Euríbor of -0.22% and that negative rates will continue throughout 2021.
Despite this, banks in Spain are still encouraging home-buyers to take out fixed-rate mortgages – and not just because they profit more from them by setting fees for their inception, or the fact that the rate on the repayments remains as fixed even if interest falls to such a degree that owners are paying over the odds.
Simone Colombelli, head of mortgages at the bank iAhorro, says exceptional fixed-rate deals are now on the table which can work out even cheaper than a variable rate at the moment.
Some are coming in at as low as 1.35%, which would have been impossible to find just five years ago.
Related Topics
THE Eurozone interest rate has now marked its fourth anniversary in negative figures, meaning mortgages in Spain and other common-currency nations will continue to be low – in fact, the closing figure for February was the second-lowest in 14 months.
Spanish variable-rate mortgages are set according to the euro interest figure, or Euríbor, and unlike in the UK, are re-valued annually, not constantly; this means if the interest rate shows signs of possibly rising, homeowners have up to 12 months to plan and work out whether a fixed-rate loan would save them money.
It also means no fluctuation in monthly repayments, so a sudden, one-off spike in the Euríbor will not mean an unexpectedly expensive month.
For this reason, and especially as a fee applies to set up fixed-rate loans, the vast majority of mortgages in Spain are variable rate.
Luckily, in the past, the Euríbor has not changed dramatically and suddenly from year to year and any rises have been very gradual, meaning rearranging an existing mortgage has not had to be an emergency.
The Euríbor first dropped below zero in February 2016, something never seen before and which led some homeowners to question whether they would actually get a rebate on their repayments, or pay less than the capital due – but the answer was, of course not.
Banks tend to set their mortgage interest rates at the Euríbor plus a given percentage, which means their cost has nearly halved since 2007 and 2008 when they were at their peak.
At the beginning of 2019, it was feared the honeymoon may be over when the Euríbor started creeping above zero again, but at its highest since then it only reached -0.082%, in March, after which it started to drop, falling once again into negative in June.
And compared with late 2007 and early 2008 rates of around 5.3% - or even the 2% to 3% after 2002 when Spain first adopted the euro – few homeowners were truly panicking.
The Euríbor in the last 14 months, from January 2019 to February 2020 inclusive, was at its lowest in August when it dropped to -0.187%, and a steady climb started to reverse again in December, when 2019 closed with a rate of -0.135%.
As at the end of February, the Eurozone interest rate was -0.179%, and no plans are afoot for it to rise greatly any time soon.
BCE to keep euro interest below zero for a fifth year at least
The Central European Bank (BCE) has consciously kept the Euríbor low in the last few years in a bid to stimulate growth in the Eurozone, encourage home-buying, get young people onto the property ladder at a time of minimal or non-existent wage increases, and help start-ups and small businesses obtain affordable credit to be able to expand and create jobs.
It does mean interest on savings is either nothing or negligible, but those who rely on savings interest for their income have greater choices – they can put their money in deposits or plans outside the Eurozone if they wish, for example – whereas for mortgages, credit cards, personal and business loans taken out within the Eurozone, it is rarely possible to acquire these beyond the debtor's immediate national borders.
Four years ago, the Euríbor fell to -0.008%, which pleased homeowners whose mortgages were due for review that month or those taking out new property loans, but which they suspected would be merely a blip.
However, other than the first five months of 2019, it continued to drop, plunging briefly to a record low of -0.356% in August 2019.
Figures are taken for the close of the month, meaning by the last day of August, the rate was 'up' to -0.178%, but still the lowest seen all year.
Mortgages reviewed at the end of February or in March 2020 will now be 0.18 percentage points cheaper than they have been for the past year.
Financial experts predict at least another year of negative interest rates – partly due to the Coronavirus epidemic in Europe, and partly due to an excess of liquidity.
Joaquín Robles of XTB finance brokers says the BCE is concerned countries may have to tighten their belts if the Covid-19 outbreak has a negative impact on their economies – already, the EU as a bloc has lost an estimated €1bn from the sudden absence of tourists from China, and numerous major events have been cancelled, including the Mobile World Congress in Barcelona, even though this was called off because of exhibitors fearing the worst and pulling out rather than an actual health scare.
As for the excess of liquidity in the Eurozone, whilst at first it may appear that this would push interest rates up – to avoid too much money in circulation and resulting inflation – but according to Robles, with 'so much cash available', banks across the common currency area 'are not prepared to pay much to borrow it off each other'.
Robles adds that the BCE intends to keep to its pledge of not increasing Eurozone interest rates until its inflation targets, of just below 2%, have been achieved – even with its chairman Mario Draghi having come to the end of his term of office and being replaced by former International Monetary Fund (FMI) chairwoman Christine Lagarde.
Analysts at Dutch high-street bank Bankinter – which operates widely in Spain – predict the year 2020 will close with a Euríbor of -0.22% and that negative rates will continue throughout 2021.
Despite this, banks in Spain are still encouraging home-buyers to take out fixed-rate mortgages – and not just because they profit more from them by setting fees for their inception, or the fact that the rate on the repayments remains as fixed even if interest falls to such a degree that owners are paying over the odds.
Simone Colombelli, head of mortgages at the bank iAhorro, says exceptional fixed-rate deals are now on the table which can work out even cheaper than a variable rate at the moment.
Some are coming in at as low as 1.35%, which would have been impossible to find just five years ago.
Related Topics
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