Spanish mortgages 40% cheaper than four years ago

Mortgage payments are easier to handle than four years ago

Mortgages in Spain are an average 40% cheaper than four years ago, according to recent data released by the Spanish Mortgage Association (AHE).

The data is in stark contrast to the highest mortgage rates on record – posted in October 2008 when average monthly payments for a mortgage valued at €120,000 over a 25-year term came in at €719, or €8,250 a year.

October 2012 was a different story altogether. Based on the same mortgage value and term, average monthly payments were calculated at €433 – amounting to €5,196 per year, making a mortgage 40% cheaper today than at their 2008 peak.

The rates were calculated using the Euribor rate, which has plunged dramatically in recent months, closing out October at its lowest-ever level, at just 0.65%. The plummeting rates have provided much-needed fiscal relief for thousands of stretched mortgage payers, particularly when the more accurate daily rate hit a ten-year low on 31 October, reaching 0.618%, marking the bottoming-out of 63 successive days of decline.

In August and September, this daily rate regularly flitted between 0.7% and 0.8%, and experts predict it could fall further as the Christmas period approaches.

“We do not expect a rise in the Euribor unless economic conditions change significantly,” said Soledad Pellón, a strategist for IG Markets. “We have had quite some time with the index being low; we have even reached historic lows, which is a milestone.”

The European Central Bank (ECB) sets interest rates for the Eurozone banks, and the Euribor takes its lead from that. Currently, the ECB has embarked on a policy of lowering interest rates across the Eurozone, but compensates for this with what is known as a rise in spreads, which includes the application of the ‘ground clause’ – designed to prevent mortgage holders from benefiting from the Euribor’s fluctuations.

Associations in Spain estimate that some four million mortgages in the country contain such a clause. However, a third of existing Spanish mortgages are also subject to covenants that protect against interest rate fluctuations.