Eurozone interest rates are close to historic lows and expected to end July on -0.49 percent – and, as Spanish mortgages are linked to these rates, buying a property is likely to be cheaper in the next month without home prices having to come down.
The Euribor, or the interest rate that applies in member States using the common currency, has been in negative figures now for five-and-a-half years, since February 2016, having been dropping drastically since the global recession took hold.
From highs of well over 5 percent at the beginning of 2008, forcing mortgage repayments up, the Central European Bank (BCE) has been dropping rates constantly since, in a bid to make finance more affordable for households and businesses and increase liquidity in the Eurozone.
Although every year brings warnings that the ‘honeymoon’ is likely to end imminently, they have so far proven unfounded – the BCE does not intend to consider a rate rise unless and until the common currency area inflation levels exceed the long-term target of 2 percent. For as long as inflation stays below 2 percent, the Euribor is expected to stay at less than 0 percent, although some variation in either direction may be seen in the next couple of years, analysts believe.
Meanwhile, if the Euribor sits at the forecast -0.49 percent monthly home loan savings could be significant. Based upon the average mortgage in Spain – a loan of €150,000 over a 25-year term at a rate of Euribor plus 1 percent – would, if they were due for review at the end of July, drop by around €14 a month, or €170 a year.
Spanish variable-rate mortgages are reviewed annually, or in some cases, every six months, meaning a sudden interest rate rise will not mean the very next payment goes up – homeowners have a full 12 months to plan if they see that the Euribor is rising, and time to make a decision about applying a fixed rate if it looks as though their payments will be going up next year.
The pandemic has caused some shrinkage in the economy across the Eurozone, so it is likely interest rates will be kept down to help stimulate cash-flow and aid recovery – a situation that may continue for at least a couple of years.
Conversely, Spain’s housing market has become more buoyant and home values risen during the Covid crisis, largely triggered by the spring 2020 lockdown which led householders to rethink where they wanted to live if they were going to be stuck indoors again, and a rise in working from home meaning more choice of location, fuelling an increase in house prices in coastal and country areas to the detriment of large, inland cities, and soaring demand for villas with pools and gardens or apartments with spacious terraces.
Ever-decreasing mortgage interest rates mean the rising home prices are not necessarily any more expensive for buyers, except those purchasing in cash – borrowing capacity increases, but not outlay, allowing sellers to add on a few digits to their price tags without putting potential new owners off.