Euribor tops 4.1% as Spanish mortgage lending drops 18%

Euribor tops 4.1% as Spanish mortgages plunge 18%

Inflation shows no signs of easing, prompting central banks to tighten monetary policy once again. The Bank of England, Swiss National Bank and Norges Bank raised rates on the same day, while the Federal Reserve has signaled two additional hikes this year. Far from stabilizing, the Euribor has surpassed 4.1%, marking the onset of a second major wave. The immediate consequence: new mortgage contracts have dropped by 18.3%, and for the third consecutive month, cancellations exceed new signings. The question is no longer whether a recession will occur, but how long the financial strain will last.

Euribor surges and mortgage activity falls 18.3%

According to industry data, the Euribor rose 36 basis points in a single session to reach 4.147%. This is not an isolated spike; it confirms a second wave that catches many borrowers off guard. The initial rate hikes already strained households with variable-rate mortgages; this second phase, faster and more aggressive, is pushing the market into conditions unseen in years. Mortgage repayments are rising sharply and, for the third straight month, surpass new home loan signings, which have plummeted 18.3% due to higher interest rates.

The significance of this data cannot be overstated. When cancellations outnumber new contracts, the real estate market contracts through credit availability rather than just price adjustments. In Spain, where property has long been considered the ultimate safe-haven asset, these trends carry consequences far beyond the average mortgage. With the Euribor showing no ceiling, summer looks bleak for those facing upcoming rate reviews.

Why is the Euribor rising so rapidly?

The answer lies in monetary policy. Persistent inflation has overwhelmed authorities, triggering recession risks. The supposed pause in rate hikes announced by the Federal Reserve earlier this month appears to be a fleeting illusion. Inflation remains stubborn, and the Fed, under Chair Powell, has not only refused to lower its guard but has also indicated two further increases this year. This challenge affects all developed economies except Japan. On Thursday, the coordinated response of central banks against escalating prices provided clear evidence that their battle continues to generate significant market volatility.

The simultaneous rate hikes in the UK, Switzerland and Norway were not coincidental; they represent de facto coordination against a common adversary that refuses to yield. Core inflation, which excludes energy and food costs, remains at levels necessitating continued tightening. Some argue that rates should already be at 6% to curb core inflation effectively. However, opponents warn that excessive tightening could trigger a deep recession and unemployment spikes that policymakers are reluctant to accept.

Impact on households and sovereign debt

The issue extends beyond the Euribor. Critics argue that rate hikes lack intended impact because governments continue to borrow at low yields, keeping the economy flooded with liquidity. According to this view, rising rates primarily impoverish ordinary citizens. Until states are forced to finance themselves exclusively through debt markets, this dynamic will persist.

Meanwhile, new mortgage registrations are falling sharply across all Spanish regions. In the Basque Country, 1,257 mortgages were signed in April, a 34.1% decrease from the previous month, while Navarre recorded 306 signings, down 40.1%. These figures speak volumes: the market is cooling rapidly. It is not merely a matter of prices but of credit access. With the Euribor soaring, banks are tightening lending criteria, leaving many potential buyers unable to secure financing.

Some speculate that housing prices will drop significantly, allowing people to buy cheap apartments paid off quickly, as in the past. This is intuition, not fact. What is factual is that real estate funds, holding substantial liquidity, can purchase properties at discounted cash prices and rent them out at high rates. If price declines occur, they will not benefit everyone equally.

The coming purge

Some observers describe the current situation as a 'purge.' Debtors will pay heavily, while others face coercive measures. Volatility is expected, and few anticipated this second wave. The cycle of rate hikes, recession, crisis, subsequent cuts, and eventual purge is a classic mechanism of social control seen before.

The warnings from the 1970s loom over the debate: when rate hikes stopped, inflation spiraled out of control, forcing double-digit increases. The lesson seems learned, but applying it without causing excessive collateral damage is another matter. With the Euribor above 4.1% and mortgage activity declining, maneuvering room is shrinking.

What does the future hold for the Euribor?

No one knows with certainty, but volatility will likely remain the norm. The Euribor has moved from negative territory to above 4% in barely a year, and this trajectory is not complete. Upcoming decisions by the Fed and the European Central Bank (ECB) will set the pace. Meanwhile, households with variable-rate mortgages will see their payments increase, leading many to consider switching to fixed rates. While advice varies by individual case, the consensus is clear: review your terms and negotiate with your bank before the Euribor rises further.

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The second wave of rate hikes has arrived. The Euribor exceeds 4.1%, Spanish mortgage signings have fallen 18.3%, and governments continue to borrow cheaply. If a purge occurs, it will not be selective. For now, summer looks financially grim for many pockets.