Euribor hits 4.134%: variable mortgage payments rise in Spain

Euribor at 4.134%: mortgage payments soar

The twelve-month Euribor closed on 30 June 2023 at 4.134%, with a daily rise of 0.76% and a monthly average of 4.007%. For an average variable-rate mortgage, that figure means hundreds of euros more per month. The data confirms that the index has broken through the psychological barrier of 4% and that annual resets on variable-rate mortgages are going to hit family budgets hard.

The June average now stands at 4.007%, which means that all variable-rate mortgages reset with this month's figure will apply a rate close to 4%. For an average loan of 150,000 euros over 25 years, the monthly payment can rise from 400 to 900 euros, according to cases circulating in the sector. The impact is especially harsh for those who took out their mortgage during the years of low or negative rates.

Why is the Euribor rising so much?

The Euribor is the interest rate at which banks lend money to each other in the European interbank market. Its rise is directly linked to the decisions of the European Central Bank, which has been raising interest rates to fight inflation. Every ECB hike is quickly passed on to the Euribor, which in turn determines the payments on variable-rate mortgages.

The climb has been dizzying. In barely a year, the index has gone from negative territory to above 4%, something not seen for more than a decade. Analysts expect the ECB to keep raising rates in the coming months, which could push the Euribor even higher. Some already say 5% is within reach if inflation does not ease.

The impact on variable-rate mortgages

For an average variable-rate mortgage, every tenth of a point rise in the Euribor translates into several euros more per month. With the index at 4%, annual resets are applying increases that in some cases exceed 500 euros a month. The most extreme case is that of those who took out their mortgage in 2008, when rates were high, and who now see their payment soar again after years of low rates.

The situation is especially difficult for families who have already seen their savings capacity squeezed by inflation. Now, the rise in mortgage payments forces them to cut other spending or turn to family support. Some choose to make capital repayments to shorten the term and pay less interest, a strategy only available to those with spare cash.

What options do mortgage holders have?

The alternatives are limited. The first is to negotiate a novation or a payment holiday with the bank, although lenders are not being particularly flexible. The second is switching from a variable to a fixed-rate mortgage, but fixed rates have also risen and current offers are not as attractive as a year ago. The third is making capital repayments, something only those with savings can afford.

For many, the only way out is to tighten their belts and hope the Euribor falls. But experts warn there will be no significant drops until the ECB starts cutting rates, something not expected in the short term. Meanwhile, every mortgage reset will be a blow to household finances.

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The Euribor will remain the star of economic conversations in the coming months. With inflation still not under control and the ECB determined to raise rates, variable-rate mortgage holders have little reason for optimism. The question is not whether it will rise further, but how much longer families can hold out before the situation becomes unsustainable.