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First Euribor drop in 20 months: What will happen to mortgages in Spain?

The Local Spain
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First Euribor drop in 20 months: What will happen to mortgages in Spain?
What will the Euribor drop mean for people with varaible mortgages in Spain? Photo: Thu Trang/Pexels

The Euribor interest rate, the index tied to most mortgages in Spain, has fallen for the first in almost two years. Here's what it means for your variable mortgage.

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The Bank of Spain has confirmed that in August the 12-month Euribor rate, the index used as a benchmark for most variable-rate mortgage loans in Spain, fell for the first time 20 months - since all the way back in January 2022.

The reference index closed August at 4.073 percent, down from 4.149 percent in July, which was its highest level since 2008.

However, the rate still remained very high compared to August 2022, when it was 1.249 percent.

What is the Euribor?

Euribor is the interest rate most often used to work out mortgage payments in Spain and to calculate both variable and fixed rates.

It is anchored to the interest rate set by the ECB and the rate that banks in the Euro Zone use to lend to each other, so when the base rate goes up, the Euribor does too, which sends mortgage interest rates across the Eurozone rising.

READ ALSO: Analysts foresee property price drops in Spain in 2023: Where and by how much?

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What does this mean for mortgages in Spain?

But what, if anything, does this mean for mortgages in Spain? A fall in the Euribor means that mortgage rates in Spain will get cheaper, right? Not exactly.

According to analysis from financial comparison site HelpMyCash, the fall in the Euribor doesn't necessarily mean that mortgage rates will also fall. In fact, the index could rise again in the near future.

"It is clear that we are at the beginning of the end of Euribor rises. However, it is still likely that there will be increases in this index in September or October", the experts say.

Therefore, at least in the short to medium-term, mortgage payments that have to be revised could still increase slightly.

READ ALSO: Where in Spain are rent prices rising the most?

The drop in August, moreover, will not lower the repayments of variable mortgages that are going to have rates reviewed in the near future.

According to HelpMyCash, the interest rates on these products are updated in line with the new Euribor index every 6 or 12 months. And as the current value of this index is significantly higher than that of six months ago (when it was 3.534 percent) or one year ago (when it was just 1.249 percent), mortgage holders will still be paying significantly more expensive monthly repayments than they were a year or two ago, despite the fall in August.

The exact increase in monthly repayments, however, will depend on the amount and term pending, the interest rate of the variable mortgage, and the years that have passed since it was first taken out.

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Will interest rates rise again?

Miquel Riera, a mortgage expert from HelpMyCash, believes that the drop in the Euribor reflects that "institutions are applying lower interest rates on their interbank loans because they expect the European Central Bank to stop increasing its rates in the medium term".

HelpMyCash foresees a further rise in interest rates in September or October owing to the ECB's objective to contain inflation below 2 percent.

It is likely that "the Euribor will rise slightly in the coming months and stabilise between 4 percent and 4.5 percent before the end of the year, even below the ECB's interest rate", Riera adds.

READ ALSO: How to change from a variable to a fixed mortgage in Spain

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