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

Fitch Warns Of RE Bubble In The Centres Of Spain’s Large Cities

25 October 2017 – El Mundo

The ratings agency Fitch is warning that a real estate bubble is now visible in the centre of Spain’s large cities, although it does not anticipate a widespread bubble in house prices across the country as a whole in the short term, due to the high volume of stock that still needs to be absorbed and the restrictions facing people wanting to access a home.

Those were the findings of analysis performed for the Housing Sector in Spain report published by the entity, which explains that bubbles involving these types of localised assets are now very evident: the strong demand and limited supply of housing in the country’s main cities are leading to extreme price increases that are becoming increasingly “unsustainable”.

According to the agency, in the central neighbourhoods of Madrid and Barcelona alone, prices have recorded an annual increase of between 15% and 35%.

For Fitch, this demand is being influenced by quantitative easing, purchases by foreigners and investment decisions, given that investors are looking to benefit from the appreciation in asset prices and rental yields. Nevertheless, the agency forecasts that these “ingredients” will not influence the overall real estate market in the short term.

Similarly, the ratings agency asserts that it is “highly unlikely” that the problems in the real estate market are correlated with the economic recovery in general and it forecasts that the average discounts being applied to sell foreclosed homes are going to continue to be very high and stable over the next few years.

This situation will continue for as long as the banking sector continues to have an excess stock of housing and for as long as buyers insist on significant discounts to acquire foreclosed homes, said the ratings agency.

According to data from the company, the discount on the sale of foreclosed homes is still “high”, up to 60% on average, compared to the initial valuation, whilst discounts can range from between 50% to 75%.

In this sense, the dispersion of the discounts on the sale of foreclosed properties is decreasing. In fact, the gap between the range of discounts decreased to 25 percentage points at the end of 2016 from 35 percentage points during the period comprising 2010 and 2011. Nevertheless, it says that this reduction is not widespread.

Problems accessing housing

On the other hand, Fitch explains that access to housing will continue to be complicated because the velocity of the house price index is exceeding wage variations.

In this way, the families’ capacity to save is increasingly reduced, also due to the labour market that favours temporary contracts over permanent ones, which makes it hard for would-be buyers to save enough to make the initial down payment of 20% necessary to buy a home.

The report also underlines that access to housing over the long-term may be limited by the gradual elimination of monetary stimuli in the market and the likely scenario of higher interest rates.

Original story: El Mundo

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

Strong Pound Makes Spanish Property More Attractive To UK Buyers

26 January 2015 – Murcia Today

Tourism in Spain could also benefit from the weakness of the euro.

Following the announcement on Thursday that the European Central Bank is to inject at least 1.1 trillion euros into the economy of the Eurozone, the reaction on the international currency markets has been to invest in sterling and the US dollar, pushing the UK pound to its highest level against the euro for seven years.

By midday on Friday, one pound was worth 1.34 euros, although it dropped back to 1.31 by close of trading on Friday, meaning that pound-holders’ purchasing power in Spain has increased by 5% since 1 January and by 12% since April last year. At the same time, the euro fell to its lowest rate in eleven years against the dollar.

How the ECB’s “quantitative easing” policy will affect the Spanish economy as a whole will become clear over the next two years, but in the short term, the relative strength of the pound could have two very important consequences.

One of these is that over a short period of time, property in Spain has suddenly become significantly cheaper for buyers from the UK, and it is not unreasonable to imagine that demand may suddenly increase from British buyers in a market which, at least on the Mediterranean coast, already relies heavily on buyers from outside Spain. Coupled with low interest rates, the greater value of the pound means that for most UK nationals, property in Spain is now more affordable than it has been for many years.

At the same time, in a week in which some of the final figures for 2014 in Spain’s tourist sector have been made public, the greater purchasing power of UK residents could lead to further increases in tourist spending by visitors to Spain from the UK after record numbers of foreign visitors came here last year. Flight prices may come down slightly in response to falling fuel costs, and for those whose disposable income is in sterling, visiting Spain and other Eurozone countries is now less of a strain on the pocket than it was a year ago.

It is also good news for those looking to buy property for the first time: Euribor dropped to a record low making borrowing cheaper than ever.

Of course, on the face of it, the fall in the euro is not necessarily good news for Spain, but if the ECB’s intention is to stimulate economic growth in the Eurozone, then the property and tourist sectors of the Spanish economy may be among the first to benefit.

Original story: Murcia Today

Edited by: Carmel Drake