Euribor Closes November at Record Low

The twelve-month Euribor, which is the indicator used in Spain to set the price of mortgages, closed November at a record low of 0.588%, which represents a decrease of 71% in a year, and will mean families, whose mortgages are due for review in December, could see their payments reduce by up to 1,224 euros a year.

Once the rate is confirmed by the Bank of Spain in the coming days, then a mortgage signed a year ago for an average amount of €150,000 with a repayment period of 25 years, will see the monthly payments drop from 639 euros to 537 euros, bringing savings of 102 euros per month or 1,224 euros per year.

After falling to 0.574% on Friday, the lowest daily rate of more than ten years of its history, this indicator, the most widely used for calculating mortgages, has marked its fifth record low of the year and accumulated twelve consecutive months of declines. However, this decrease will only benefit those loans that do not include the controversial “ground” clause which prevents their payments falling below a certain percentage – usually around 3% – and therefore benefiting from situations like this.

The Banks and Insurance Users Association (Adicae) have estimated that there are around four million people in Spain whose mortgages contain this clause, and is the reason why the Association has filed claims against more than a hundred financial institutions. According to a report presented by the Bank of Spain to the Spanish Parliament in 2010, about a third of existing mortgages were subject to clauses that limit fluctuations in interest rates.

Diario Sur reported that during this autumn the Euribor accumulated a run of 76 consecutive days of declines, which was interrupted on the 20th November and resumed again on 22nd November, and which was the second longest run of declines in its history after the period between December 2011 and May of this year when it accumulated 99 consecutive days of declines.

The Euribor is the interest rate at which banks in the eurozone lend money, and it evolves according to the ups and downs of interest rates imposed by the European Central Bank (ECB) on the eurozone, currently 0.75%. Although under normal conditions the Euribor must maintain a spread of between 0.5% and 0.8% with eurozone interest rates, expectations of a further cut has pushed down the price of money on the interbank market.

The Euribor recorded its all-time high in July 2008 (5.393%), and thereafter began a downward trend that stopped in 2010 – after the then monthly minimum of 1.215% in March of that year – and resumed in mid-2011.