A 0.75 percent rise in interest rates was confirmed this morning by the European Central Bank. This change tightens Euribor, the reference index used by most variable-rate mortgages in Spain. For homeowners with floating rate loans who need a review, the Euribor shift translates into an average monthly increase of 178 euros. The indicator closed at 1.913 this morning, up from 1.249 in August. The rise means that the 150,000 euro floating-rate mortgages up for review this month will face an additional 2,136 euros over the next twelve months.
April marked a turning point in Euribor’s journey as a benchmark index. Variable-rate mortgages closed the month in positive territory, something unseen for more than six years since January 2016. Banks had anticipated the European Central Bank’s action to lift rates for the first time in 11 years, delivering a 50 basis-point increase in July—the largest since 2001—and lifting euro-area rates to 0.5%. With the latest announcement, the rate stood at 1.25%.
Following the ECB’s move, Euribor climbed to levels not seen since 2009 in August and September. After six years of negative Euribor, the rise makes all floating-rate mortgages more expensive. For instance, consider a €150,000 mortgage over 25 years at Euribor plus 1 percent. Before the revision, the September 2021 Euribor was applied, with monthly installments around 532.14 euros. After the review, the September 2022 Euribor, expected near 1.9%, would push monthly payments to about 710 euros, representing an increase of 178 euros per month and 2,136 euros more per year.
Euribor’s ascent continues to influence the fixed-rate mortgage market, where lenders had enjoyed historically low floors as Euribor sat in negative territory for years. Yet, fixed-rate offerings have begun to give ground to variable rates. The trend suggests ongoing upward movement as money prices rise and financial institutions adjust policies. The latest figures from the Spanish Mortgage Association, a group including the leading banks, show that new variable-rate loans rose by eight-tenths of a percentage point from April to May, reaching 20.9 percent of total activity. Fixed-rate lending declined by the same margin, leaving fixed-rate loans at 79.1 percent.
Deposit
The same rate increase that burdens borrowers becomes welcome for savers. Depositors stand to benefit from higher yields as banks compete for funding, potentially allowing banks to raise deposit fees in the coming months.
That rise in mortgage payments also feeds inflation, a factor that influenced August readings and, in turn, the purchasing power of households. In this climate, households face higher living costs while lenders adjust to a shifting pricing environment.