AFTER more than six years with the Eurozone interest rate, or Euribor, in negative figures, mortgage repayments have now risen at unprecedented speed and within one calendar year, leading to first-time buyers or those originally seeking to upgrade their homes having a major rethink.
Given that rates have remained stable – and very low – for so long, a variable-rate mortgage has long been the most financially-sound option for homeowners, since a fixed-rate loan tends to involve higher interest as well as an inception fee to freeze the rate for anything from two to five years or, in some cases, up to 10 years.
But then, the common currency interest rate upon which Spanish mortgages are based has never risen so quickly and dramatically, at any point in its 24-year history, as it has in the past six months.
Whilst it would not seem likely the Euribor will ever reach its record highs again, or that similarly exceptional hikes would be applied in the near future, the situation has generated widespread alarm nationally – enough that the Spanish government has swiftly introduced new legislation to soften the blow.
Firstly, what has happened to the Euribor, exactly?
Differences in repayments on the same loan amount and term are not uniform – more recent mortgage contracts, where the interest is higher than the capital, have reportedly increased by up to 11 times those of much older mortgages where the capital makes up the bulk of the monthly payments.
On average, mortgages tied to the Euribor have risen by between a quarter and a half after a dramatic hike in common currency zone rates applied by the European Central Bank (BCE).
The entity, presided by former International Monetary Fund (FMI) chair Christine Lagarde (pictured below), lifted the Euribor by 250 percentage points by the end of 2022 and a further 50 this month – February 2023 – in a bid to counter consumer price-led inflation sparked by the Russian conflict in Ukraine, transport crises and fuel shortages.
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