Why is the Euribor rising again?

Hi,

I hope there is somebody who knows.

My mortgage rate is due to be reset based on avarege euribor rate in November. I am now starting to worry looking at the last days rates, that is on the up again.

Is it just short term few days rise or  is the trend  changing?

I would appriciate any opinions.

Thanks.

Probably down to expectations that the ECB will start raising rates in the not too distant future with France and Germany moving out of recession.

Unfortunately, it looks like Spain will be stuck with higher interest rates at a time when it needs them close to 0%.

Every peice of economic news (good or bad!) seems to mark the pound down against the Euro. There's a lot of concern in the markets about the level of UK government debt that is dragging the pound down.  Most analysts seem to think the pound is undervalued against the euro. Barclays say fair value is ultimately £/€1.30, rising to £/€1.20 by the end of the year.!!??

Sorry vcb... This is about the euribor rising and nothing to do with the £ and Euro exchange rate! Well, never mind....

Sanchez1, thanks for your comment. The ECB has actually expressed the opinion that they will not rise the rate in the near future as it is to early to say the crises is over.  Why is the euribor on the up I dont understand.

It's a zero sum game and the pound is a good proportion. I'm sure most readers are interested in that element rather than any other particular currency.

VCB

You may well be correct but Hula is asking something personal to him and not interested in anything else. Sorry Hula I cannot give any advise but its a bit annoying when threads get lost on a completley different subject that they were started on and I find it most annoying. I am probably adding to the problem by even putting this thread on, so sorry for that also.

Thanks RD. Yes, it is annoying when threads get lost....

I would love to hear some opinions about the way the euribor is going....

Thanks.

Thanks RD. Yes, it is annoying when threads get lost....

I would love to hear some opinions about the way the euribor is going....

Thanks.

Hi Hula.

To get back to your question as to the trend in Euribor (interest) rates.

Most banks in Spain base the pay rate of their mortgages on the Annual Euribor plus a margin. In fact, since their peak in the Autumn of last year, we have seen a steady decline in this rate following the ECB's reduction in the base rate. The peak in the Euribor Annual was circa 6% whilst today (Friday close) it was only 1.23%.

And the rate has been consistently nudging down over the last few months implying that the money traders do not envisage any rises in the base rate in the short term. However, not that the base rate is 1% and the EA 1.23% i.e. the markets have discounted a further fall in the base rate but rather a rise by 0.25%.

As to your mortgage, I would be surprised if the revised 'pay rate' greatly exceeds 3% (EA 1.23% say plus the bank's margin) so watch that! You should be looking at a significant fall from the present pay rate.

Hope that helps!

Thanks  a lot, Rose FP.

Hi Hula,

Not sure how long you have held your mortgage or who your lender is but if they have a minimum rate percentage level (mentioned in the deeds) this is also worth looking out for.  A lot of people have discovered this now that rate levels are at record lows!

Hi Sharonw,

I have my mortgage for over 3 years now. Fortunatly I don't have a minimum rate restriction as one of my mortgage condition. It is annual euribor +0,8%. So all I am worry about is the euribor rate in November.

Let's hope it won't be much higher then in September.

Thanks.

That's good news Hula, fingers crossed the rate stays around the same level for your review in November!

Hi Hula,

The current 12 month Euribor rate is 1.247

If you want to keep an eye on it daily then go here to www.euribor.org and click on Historical Data 2009 and open the Excel Spreadsheet , then go right to the end.

I would imagine that it won't be much higher by the end of November, if indeed it will be higher as all indications suggest it will remain low until at least 2nd quarter 2010, as the ECB is still concerned about raising rates even though France and Germany are showing 'signs' of recovery.

one other point worth mentioning Hula is that if your annual review is in fact November it will likely be based on the September published figure as lenders generally review according to the rate set two months prior. Under Spanish law a lender is required to give advance warning of what the new monthly payment will be after the review - this is in effect a rollover from the days when communications were not what they are today thus a two month period was deemed appropriate for the borrower to make provision for what the new monthly payment might be. Of course if you mean the new payment will start in January then you will be subject to AE as in November but it sounds from your post as if the payment changes in November.

While the ECB seem to want to leave the rates on a cautious hold at the moment the traders are indeed factoring in a possible increase - EURIBOR means European Interbank Offered Rate - the rate at which prime banks lend to each other and it is the benchmark by how they mark their lending and borrowing books to market (i.e. whether a loan or deposit is making or losing money). Thus whether the ECB changes rates or not it is not this which affects Euribor - it is where commercial banks are lending to one another - this was one of the reasons why despite the fact the ECB were reducing rates at the height of the crisis the bank werent reducing their rates in line (a.they didnt have the liquidity to lend and b. they simply werent sure of the credit worthiness of the other institutions they were lending to - thus there was almost a freeze on interbank lending as few banks were willing to take the risk).

Thank you all for your replies.

My mortgage changes in January hence the bank takes the November Euribor average rate. ( I wish it was September rate)

Well, looks like the last few days rises are not just short terms "jumps". There is my luck.....I hope the increase is not going to be huge and I feel some sort of finacial relief.

I use www.hipotecayeuribor.com It shows everyday rates, all the past data and future trends. It is actually showing the Euribor going down in October, November and December..... it is most likely wrong.

Thanks again. 

Hi all, just saw this thread and thought it may be worth asking a question. I had started a new thread but no takers...apart from the dependable Maria. I am looking for a new Spanish mortgage. My deposit will be up to 40% of the valuation. Can anyone advise which the best available mortgages are? I will probably be looking for a Euribor plus deal, but am open to persuasion.

Thanks, Dave

Good day Dave.

It will depend on how you deem the 'best' deal. For example, is your driver the maximum borrowing, the best rate of interest, a fixed rate perhaps, the maximum 'Interest Only' term or indeed just a straight forward Repayment type (capital and interest).

If you have 40% available that implies a 70% mortgage taking into account the costs/fees of the purchase and mortgage.  But not necessarily so! By this I mean that a large number of properties being sold today are at a discount to the market and we are seeing bank valuations exceeding the contractual price. Where this is so, the need for a 70% reduces to perhaps 60% and then lending terms can be more attractive.

For example, let's assume a purchase of €100k and that you have €40k as an investment. 70% on a valuation coming in at the same level would be €70k. But, if the property valued at say €130k, then lending could be up to €90k, thus reducing your cash investment to €20k (€100k plus costs less €90k). Or, for better terms, you could pump in the €40k so the mortgage needed would be just the €70k = 53% of the value.

I hope that makes sense!

Most lenders base lending on the Annual Euribor plus a margin (to cover their costs). The lower the % of loan, the lower their perceived risk and the better the terms. Normally - in this tight lending market - the margin today would be 1.5% to 1.75%. Much higher than it used to be. But with the example 53% this could be negotiated to say 1.25% thus reducing the pay rate from as much as 3.5% to closer to 3%.

And then there is the issue of 'Interest Only' for the attractive lower monthly payments and added protection. These tend to come at a slight premium (0.25%) over an ordinary Repayment (capital & interest type). And, if the property is being purchased as a holiday home or investment, then cash flow is often important and thus Interest only that much more atrractive.

You see that 'best' is not as simple to respond to as one might expect!

Hi Fultond,

Sorry!  Missed your post and although I can see you made the post on the 13th Oct, I still cannot find it!

When you say your deposit will be 40% LTV - Just about all lenders now base their percentage on whichever is the lower of valuation or purchase.  The maximum percentage available to a non resident is 70% - of the lower.

There are some good deals around but it really does depend on several things i.e. your requirements as in product, be that Repayment, an element of Interest Only, Fixed rate, whether you require maximum borrowing, the term of the mortgage (lenders have different end age) whether you are 'happy'(!) to take compulsory Life Assurance (again, many lenders now enforce this) and on the other side of the coin having found a deal that interests you, whether your circumstances meet the lender criteria.

As an example of a couple of good deals

60% lower of  valuation / purchase price - monthly euribor + 1.3 (current mortgage rate 1.74%) Repayment and + 1.4 (1.84%) Interest Only. 

70%  lower of  valuation / purchase price - starting at annual Euribor + 0.95 (current mortgage rate 2.21%) Repayment only.

Good Luck!

My understanding of why the Euribor might look like it is beginning to rise, is that the ECB was indicating that they will reduce the amounts of cash that they have been pumping into the markets. They have effectively been making it artificially cheap for financial institutions to borrow money. THe ECB sets the base rate monthly, but the Euribor is an inter-bank rate which is driven by the market. Less cheap cash available will equal a rise in the price.

All the best

Chris