Euribor Falls to New Record Low

20 August 2019

The 12-month Euribor benchmark interest rate, which is used as a reference to set Spanish mortgages rates, fell to a new low of -0.398% last week. The rate first fell into negative territory in February 2016, as the European Central Bank’s (ECB) policy of quantitative easing looked to boost the Eurozone economy.

Euribor seemed to have hit bottom in March 2018, at -0.191%, when analysts began predicts gradual increases in the rate until potentially hitting zero in 2019. However, after rising to -0.108% in February, Euribor began falling again due to fears that the growth in the Eurozone was once again faltering.

Original Story: El Confidencial

Adaptation/Translation: Richard D. K. Turner

Some House Prices Have Risen By 20% Since Q1 2015

10 October 2016 – Expansión

Money is seeking refuge and returns in the real estate sector once again. Real estate assets, which experienced such significant gains at the beginning of the century and which, shortly thereafter, generated so many problems, represent one of the main options for investors in Spain once again. The significant instability that we are seeing in the stock markets; the absence of attractive investment products from the banks; and the many doubts hanging over the global economic recovery, mean that many investors are now backing the security being offered by the, until recently, maligned Spanish real estate sector.

“In the current economic climate, characterised by market volatility and negative interest rates, the real estate sector, and in particular, the luxury residential segment, is becoming the safest choice for investors”, explained sources at the real estate consultancy firm Knight Frank.

These data are corroborated by the evolution of prices in some of the main areas of Madrid and Barcelona. According to data published by the appraisal company Tinsa, since Q1 2015, which is when it is considered that prices in the sector hit rock bottom, prices in the centre of Madrid have soared by more than 10%. Specifically, in the neighbourhood of Salamanca, the increase has been almost as high and the price per sqm now amounts to €3,500/sqm. The increase in the Cataluñan capital is even more pronounced and in the Ensanche de Barcelona area, prices have risen by 20%, from €2,717/sqm at the beginning of 2015 to more than €3,200 at the end of Q3 2016. Moreover, prices rose by more than 15% in the Gracia neighbourhood and by 13% in Sarriá.

This situation is the result of the economic recovery in the country, but also the apepal that the real estate sector has for overseas investors. According to Knight Frank, Latin America and European investors are being very active in their purchases, given that prices fall well below those seen in cities such as Paris, London and Milan.

This good image of the Spanish property sector overseas is going to be maintained over the next few years. That is according to Deutsche Asset Management, which reaffirmed its advice to “buy” in the real estate sector in Spain in a recent report.

“We expect significant returns to be generated (…), well above those being offered in other European markets”, it said.

The only problem that both the manager of Deutsche Bank and Knight Frank are concerned by is political instability. In fact, the real estate consultancy said that “we cannot avoid the situation of political uncertainty that Spain has been living for the last 10 months (…). Activity has been good in the sector but with a stable Government, the growth rate could have been exponential”.

Nevertheless, this obstacle is not likely to outweigh the attractive returns being offered by the sector. According to forecasts from the consultancy CBRE, real estate investment between now and the end of the year is expected to amount to almost €3,000 million, taking the total for the year to between €8,500 million and €9,000 million.

Original story: Expansión (by Daniel Viaña and César Urrutia)

Translation: Carmel Drake

Banks May End Up Paying Out Interest To Their Mortgage Customers

15 April 2015 – Expansión

In Europe, negative interest rates have created a problem that no bank would ever have imagined until now: they cannot rule out the possibility that they may end up having to pay out interest to customers that have mortgages linked to Euribor.

In countries such as Spain, Portugal and Italy, Euribor is the interbank interest rate that is used for (most) loans. Since the ECB introduced measures such as quantitative easing (QE) to boost the Eurozone’s economy, the index has fallen sharply and has even slipped into negative territory.

Given that the banks set interest rates on many of their loans at a small percentage above or below reference rates, such as Euribor, the fall in these interest rates means that some banks are now finding themselves in the difficult situation in which they are having to pay out interest to borrowers.

At least one bank, Bankinter, has started to pay its clients interest on their mortgages for those loans that are indexed to the Swiss franc, after the reference rate fell into negative territory.

According to a spokesman for Bankinter, in recent months, a negative interest rate has applied to the handful of mortgages linked to one-month Swiss franc Libor that the bank still has in its portfolio, since that Libor rate has dropped to a rate of -0.85%.

So far, European banks have been hoping that they will avoid the cost of having to pay out interest to their customers.

They have consulted with their (respective) central banks to find out how they should act in the event that the interest rates on their mortgages fall into negative territory. And so far, the response they have received has not been very reassuring.

The Portuguese central bank ruled recently that entities will have to pay interest to their customers if Euribor falls below zero, although the banks may “take appropriate action” regarding the terms (and conditions) they include in future loans. In Portugal, more than 90% of mortgages are linked to Euribor.

In Spain, a spokesman for the Bank of Spain said that this matter is currently being evaluated. The vast majority of Spanish mortgages are linked to 12-month Euribor, which currently amounts to 0.187%.

An executive from another Spanish bank said that in recent months his entity had started to include floor clauses in the loans linked to Euribor that it grants to companies.

In Italy, the banks are waiting for a response from the central bank, although in advance, they say that their mortgages do not contain any clauses to explain what happens if interest rates slide into negative territory.

Original story: Expansión (by P. Kowsmann and J. Neumann)

Translation: Carmel Drake