The Euribor entered positive territory in April and in June it confirmed its biggest rise in 14 years, which confirms the end of cheap mortgages. The most common variable interest rate on mortgage loans had been negative for six years, since February 2016, and has now skyrocketed. After closing May at 0.287%, June began strongly, more than 0.4%, it exceeded 1% on the 15th and has closed above 0.8%.
Mortgage loans become more expensive due to the tightening of monetary policy announced by the European Central Bank and fixed-rate mortgages gain ground.
The ECB has advanced that it will raise interest rates a quarter of a point in July and will increase them again in September, depending on how inflation evolves in the eurozone, with which the governing rates will be positive from the third quarter, which has caused the rally Euribor bullishwhich has gone from closing 2021 with a monthly average of -0.502% to exceeding 1% in its daily price in June.
The distribution between fixed-rate and variable-rate mortgages has been changing over time in Spain, from the practical hegemony of mortgage loans referenced to the Euribor, to the reverse situation, in new mortgages, three out of four are fixed rate and only one in four is variable rate.
In June 2021, just one year ago, there were 4,500,253 residential mortgages living in Spain, of which 940,553 (20.9% of the total) were governed by a fixed interest rate and 3,559,700 (79.1%) by one variableas reflected by the Spanish Mortgage Association in its Dynamic analysis of the Spanish mortgage portfolio.
The president of Adicae, Manuel Brownsexplains to RTVE that “the bank has pushed towards fixed interest” in order to maintain its margins on mortgages, its main financial product, during all the time that the indicator has been negative and “has advanced the rise in the Euribor because I really wanted to“, discounting the future rise in rates by the ECB.
The director of Hipotecas.com in Madrid, Martha Fernandezquantifies between 800 and 1,800 euros per year the impact that the rise in the Euribor may have in a variable-rate mortgage, an amount that “does not put a family at risk of delinquency”, although it occurs in a general context of rising prices, from the cost of energy to the cost of the shopping basket.
change of strategy
The iAhorro spokesperson, Laura Martinez, sees a change in marketing strategy in financial institutions. Since April, the bank tries to “move demand from fixed to variable“, points to RTVE, to obtain a greater profit margin, so they raise the fixed interest and lower the type in the variable.
Users can continue to find fixed mortgages, but the spreads are now higher, so they are no longer as attractive “a few months ago it was possible to find a fixed mortgage below 1%. Now they are, generally between 1.5% and 2%“.
Fernández de Hipotecas.com clarifies that when the rate did not reach 1%, it is because the mortgage was linked to several products that ended up making it more expensive and acknowledges that fixed rates “are rising and move between 2% and 3%”, following the recommendation of the Bank of Spain that discouraged a “very low long-term” level.
Banking margins improve
From iAhorro they value that “we come from historical lows” and fixed mortgages “now begin to rise, but they are still below the rates that we could find in 2014 or 2015. They continue to be very cheap mortgages, but they are no longer so spectacular“.
Along the same lines, the AFI analyst, Martha Albernidetails to RTVE that “the anticipation of rate hike expectations has made entities progressively abandon the strategy focused on marketing fixed-rate mortgages (a segment that has been the protagonist of the concession since the beginning of 2020) towards a reactivation of variable rate operations“.
Alberni believes that “the rate hike is going to generate a undoubtedly positive effect on bank marginsheavily weighed down in recent years by negative rates”. Rates for granting mortgage loans pick up and the effect of the review of mortgages with variable interest”will be reflected in the income statement with a certain delay given that the repricing of the operations is carried out every twelve months”.
Evolution of the Euribor
Facing the end of the Euribor year, iAhorro estimated 0.5% in January and 1.3% in May, but the evolution of June has led them to review the data and “it could finish the year closer to 1.5% than 1.3%“, without ruling out an update in July, after the ECB’s decision. AFI analysts affirm that the Euribor “will almost certainly close 2022 at levels above 1% (their forecast is 1.3%)”.
In Hipotecas.com they advance that future markets indicate that the Euribor will end between 1.25% and 1.75%. More optimism in Adicae, where they believe that the indicator “goes up and down slowly” and may not exceed the 1% threshold this year.
Experts warn of how difficult it is to predict the Euribor, an index highly sensitive to economic and political movements, which has historically oscillated half a point year-on-year. In January nobody imagined the war in Ukraine or the current levels of inflation, none of the forecasts from then have been fulfilled, according to Martínez, while Pardos recalls that months ago its stabilization in positive territory was delayed until 2030.
In 2023, “there is much more uncertainty“, according to AFI. They consider that the euro area will not support many more additional increases from the ECB next year (they expect 5 in 2022) and, consequently, “the Euribor should be in the range 1.50%-1.75%“. Market forecasts point to the mortgage index exceeding 2% next year, agree from Hipotecas.com.
“New housing bubble”
The president of Adicae alerts to the possibility of “a new real estate bubble” and denounces the rise in prices: “Housing cannot be a speculative asset“. When it comes to getting a mortgage, he asks consumers and banks to be responsible because “family over-indebtedness is rising again” and, in his opinion, “not being able to pay a mortgage is the worst misfortune that can happen to a person”.
From AFI, they value that the rebound in rates “can deteriorate, in the medium term, the ability of customers to payespecially of the most indebted households and companies”. They recall that the bank “maintains some deterioration that is still latent, which, combined with inflation, could give rise to a growing risk of defaults, especially in the most vulnerable sectors after the pandemic and in which rising energy prices could have a bigger impact.”
In general, when inflation rises, delinquencies also rise, which is why mortgage defaults could grow, whose installments are going to rise for almost 80% of those mortgaged in Spain. In iAhorro they point out that “if costs continue to rise and incomes remain the same, it is increasingly difficult to pay for everything. That said, in 2019 the bank was reinforced with the mortgage law so that the mistakes of the past are not repeated.”