Euribor - the rate normally used to calculate mortgage payments in Spain – has fallen rapidly to the lowest it’s ever been, but average mortgage interest rates used by banks and savings banks to calculate mortgage repayments were still rising as recently as January, new figures reveal.
The average mortgage interest rate in January was 5.64%, an increase in percentage terms of 10.2% compared to a year ago, and 1.1% higher than December 2008, according to data from the National Institute of Statistics (latest figures are for January).
In contrast, Euribor fell to 2.622% in January, a 24% fall from December, and 50% down from October. 12-month Euribor is expected to close March at around 1.9%, the lowest level in Euribor’s 10 year history.
The data shows that average mortgage interest rates charged by lenders have not fallen since October, despite Euribor falling more than 50% since then.
Savings banks are the worst culprits when it comes to hogging the benefits of a falling Euribor. Savings banks charged an average of 5.72% at 23 years, whilst ordinary banks charged 5.63% at 20 years.
Spreads between Euribor – the rate at which banks lend to each other - and mortgage interest rates are widening as banks try to rebuild their balance sheets after years of reckless lending on thin spreads.
These figures square with widespread complaints, especially amongst non-resident borrowers, that banks are not passing on any of the savings from a falling Euribor. The small print on many mortgage contracts is also starting to reveal nasty surprises for borrowers, such as interests rate ‘floors’ below which mortgage rates cannot fall.
Nevertheless, many borrowers on annually resetting mortgage should soon start to see some relief in their monthly payments. If the fall in interest rates is passed on payments on the average mortgage should fall by 25%.
Declining mortgage activity
The number of new mortgages approved fell 43.5% to 53,000 in January compared to a year before. The overall value of new loans fell 52% year on year, and the average mortgage value fell 14.5% to 122,000 Euros. New mortgage approvals have fallen for 19 consecutive months, and are now 20% lower than a year ago.
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