Euribor peaks

In early November 2023 it was confirmed that the twelve-month Euribor had closed October with an average above 4%, its highest level since 2008. In time it would be seen that month marked the ceiling of the cycle, although at that moment no one could know it for certain.

For thousands of Spanish families, the figure was not an abstraction: the great majority of the country’s variable-rate mortgages are referenced to this index, so its evolution directly determines what is paid each month. And for many companies, which also have debt linked to the Euribor, it represented a markedly higher financial cost than barely two years earlier. It is worth bearing in mind that the Euribor is published for different terms and that each mortgage refers to a specific one, normally the twelve-month. Knowing which one applies to your own contract avoids following figures that are not the relevant ones.

What was confirmed

That the Euribor reached its highest level since 2008 matters because it is the rate to which most variable-rate mortgages in Spain refer, and it is updated with the market’s expectations about ECB rates.

It is, in essence, the price at which European banks lend to each other at that term. Although it is not set by the ECB directly, it moves according to what the market expects the central bank to do. That is why when the ECB raises rates, or is expected to, the Euribor rises, and when cuts are anticipated it usually moves down before they happen.

The highest payment in fifteen years

Those who had their mortgage reviewed in those months paid the highest payment in fifteen years. In a variable-rate mortgage, the change occurs at each review, normally every six or twelve months, so the effect arrives with a delay and all at once for someone with a review coming up.

That means not all mortgage holders felt it at the same time. Whoever had their payment reviewed in autumn 2023 received the full impact of the accumulated rise, while others still had it ahead. Knowing the date of the next review and simulating the payment with the current index makes it possible to anticipate how much the monthly budget will change. Some institutions apply different spreads depending on whether other products are taken out, such as insurance or direct debits, and it is worth checking whether those requirements are still met and what happens to the rate if they stop being met.

A ceiling with nuances

It would be the ceiling of the cycle. Since then, the trend was downward, though slow. A gradual fall eases things for families, but does not immediately bring payments back to earlier levels: the review follows the contract’s calendar and the index must stay low for months for the relief to be complete.

It is worth reviewing with the lender the options that exist, such as switching to a fixed or mixed rate, and calmly weighing the costs and terms of each alternative before deciding. A change of terms can bring peace of mind, but it usually carries fees and conditions of its own, and does not always pay off. The advisable course is to compare with figures and, if in doubt, consult an adviser. If a change of terms is to be explored, it is useful to ask for offers in writing, compare the total cost over the expected period of holding the mortgage and bear in mind that an improvement in the payment in the short term can make the whole operation dearer.

A peak already passed does not erase the effort it demanded.

This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.