Mortgage rates rise, new lending
falls, banks lend more to fewer people, and a judge sides with
Posted on November 1, 2010 by
Euribor (12 months), the interest rate
normally used to calculate mortgage repayments in Spain,
finished October at 1.495%, compared to 1.42% in September, a
jump of 5.3pc in a month.
On an annualised basis,
Euribor was 20.3pc higher than
October last year. As you can see from the chart above, it just
keeps going up. That spells higher monthly payments for
mortgage borrowers in Spain.
As a result of the latest increase, repayments for a typical
mortgage (121,000 Euros, 26 years, Euribor +0.8) will go up by
15 Euros /month, or 180 Euros / year.
Where will interest rates go in the near-term? My guess is
further up as we mutate into the next stage of the credit
crisis, with out-of-control fiscal deficits and sovereign
defaults on the cards. If I’m right, that means more downward
pressure on average house prices (but not necessarily on prime
New Mortgage Lending
New residential mortgage lending fell again in August, by an
annualised 3.4pc, following on from an annualised fall of 6.8pc
in July. In other words, fewer people are taking out mortgages
than last year, which inevitably depresses demand for
This is the fourth month in a row that new mortgage lending
How that squares with the recent news that the Spanish
property market grew by XX in August I don’t know. Very few
people in Spain can afford to buy without a mortgage.
The average residential loan value in August was 121,381
Euros, up 8.5pc on last year but down 0.7pc compared to July.
That means banks are lending more to fewer people, which might
encourage a 2-tier property market with prime and sub-prime
segments going in different directions.
Overall new residential mortgage lending was 6.096 billion
Euros, down 10pc on July by up 5pc on last year.
The average new mortgage interest rate in August was 3.69pc,
down 2.2pc on July and 14.2pc on last year. That makes sense if
banks are lending more to fewer people with better credit
Other Mortgage News – Judge Sides With
There has been a bit of a hue-and-cry in Spain over a recent
decision by a judge in Seville that mortgage interest rate
‘floors’ are abusive clauses and therefore illegal.
A floor is a clause that allows lenders to set a lower limit
for the interest rates that comes into force if Euribor falls
below that limit. It protects lenders from ultra-low Euribor
rates, in the same way that ‘ceiling’ clauses protect borrowers
from ultra-high rates.
The judge said that ceilings tend to be unrealistic, often
in the 10pc to 15pc range, whilst floors are much easier to
trigger, often in the 2.75pc to 3.25pc range. Euribor has been
below this range since 2009. These clauses work
disproportionately in favour of lenders, argued the judge.
The ruling came from a lower court in Andalucia, and banks
in the case like BBVA plan to appeal. A final decision could
take years to emerge.
But at least it gives borrowers who have discovered floors
in the small print a glimmer of hope.