The 12-month Euribor rose in September 2022 to a monthly average of 2.233%, up from 1.249% in August, according to the Banco de España. What it means for anyone with a variable-rate mortgage.
The Banco de España announced on 3 October 2022 that the 12-month Euribor, the main benchmark for variable-rate mortgages in Spain, rose in September to a monthly average of 2.233%, from 1.249% the month before. Over twelve months the index has risen 2.725 points: in September 2021 it stood at −0.492%. It is the highest level since January 2009, when it stood at 2.622%.
Why it is rising
The Euribor reflects the rate at which European banks lend to each other for one year, and it moves with what the market expects from official interest rates. The European Central Bank raised rates by 50 basis points on 21 July and by 75 on 8 September, taking the deposit rate to 0.75%, and said it expects further increases over the next several meetings. The Euribor curve itself rises with the term: 0.574% at one month, 1.011% at three months, 1.596% at six months and 2.233% at one year. That is why the Euribor tends to move before official rates. The ECB’s next monetary policy meeting is scheduled for 27 October.
The Banco de España points out that the official reference rates are valid from their publication in the BOE, which normally happens a few days after the bank releases them. Each contract states which value of the index applies and how often the rate is reviewed, for example every six or twelve months.
What it means for a variable-rate mortgage
An illustrative example: a loan with €150,000 outstanding, 25 years to run and a margin of 1% over the Euribor. With the September 2021 Euribor (−0.492%), the total rate was 0.508% and the monthly payment about €533. With the 2.233% of September 2022, the rate would be 3.233% and the payment would rise to about €730: almost €200 more a month, about €2,370 a year. This is our own calculation, assuming the same outstanding capital; in a real contract, the index and review date set by the contract and the capital already repaid all matter.
Anyone with a variable-rate mortgage will notice it at the next review, not before: until then the payment stays the same. The rise in the index passes through to the applicable rate in one go, so it is worth working out in advance how much each mortgage payment will go up, using the outstanding capital and remaining term.
What options there are
Law 5/2019 on real estate credit contracts allows a loan to be repaid early, in whole or in part, at any time (Article 23). On variable-rate loans, a compensation for early repayment can only be agreed under one of two mutually exclusive options: up to 0.15% of the capital repaid during the first five years, or up to 0.25% during the first three, and in any case capped at the lender’s financial loss.
If a variable rate is replaced by a fixed rate, or by one with an initial fixed period of at least three years, whether by amending the contract with the same lender or by another lender taking over the loan, the compensation cannot exceed 0.05% of the capital repaid during the first three years; and if no capital is repaid in the amendment, no fee can be charged for that reason.
Before deciding, it is worth asking your lender and others for an offer, comparing the total cost (rate, fees, expenses and tied products) and working out how long it takes to recoup what the change costs. Every family’s situation is different; ask your adviser how it applies to your case.
The Euribor can no longer be ignored: each review of a variable-rate mortgage passes it on to the payment.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
