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Variable Mortgage Index Has Overcome The Crisis Already

The Euribor fell again for the second consecutive month, although this time the magnitude of the shock was greater than that registered in June.

If that month closed its average at -0.147% , that is, about six basis points below that registered in May, in July the index with which interest rates are calculated for the overwhelming majority of variable mortgages in Spain reaches -0.273%, in the absence of data for Thursday and Friday.

In this way, it says goodbye to the threat of a return to prices above zero – in May it had risen to -0.081% , the highest level since December 2016 – and returns to the terrain it used to move in the previous months to the coronavirus crisis .

Therefore, the mortgage loans that are signed now will be cheaper compared to the previous month. However, old mortgages that have to be reviewed these days will become slightly more expensive, since the Euribor price is somewhat higher compared to the same period last year.

The difference with that time – in July 2019 the index closed at -0.283% – is one basis point above, so that those mortgaged with loans of 300,000 euros over 30 years with an interest rate composed of the Euribor plus a differential of 0.99% will pay 927.38 euros in the next 12 months compared to the 925.75 euros that they paid now.

The difference is 1.63 euros per month or, what is the same, 19.56 euros per year, according to calculations by the bank comparator iAhorro.

By representing the interest rate at which the Old Continent banks that belong to the Euribor management panel ( EMMI ) lend money to each other, in the peak phase of the pandemic the index reflected the mistrust that existed among the entities, who preferred to attend the liquidity rounds launched by the European Central Bank (ECB).

The logical effect of the cooling of the interbank market was the increase in the price of the Euribor.

In recent weeks, however, “these tensions have diminished,” explains Joaquín Robles, analyst at the financial broker XTB.

But investors are also verifying that “ the economic recovery is not going to be as fast and solid as they believed, and that there could be more outbreaks of Covid-19 , which would lead to a slowdown in the economy, or, at least, more difficulties to get out of the crisis ”, he adds.

Faced with this situation, Robles believes that central banks will keep interest rates at zero for longer than initially expected and will continue with capital injections.

The result would be the continuation of very low general rates and a Euribor that could fall below its historical minimum, that -0.356% that it registered in August of last year . “We see it possible,” he emphasizes.

“We do not believe that the index will go back to zero in the remainder of the year”, points out, along the same lines, the director of Mortgages at iAhorro, Simone Colombelli, for whom, given this scenario, ” the banks’ bet goes to be in the fixed ones ” , a type of loan that guarantees higher profit margins to banks, as it is not exposed to the fluctuations of the Euribor.

In any case, after a few months in which uncertainty due to the health emergency has prevailed, financial institutions have begun to adjust their mortgage offer.

“Those that had competitive proposals within the market have maintained them and those that had higher interest rates have been adjusting them in recent weeks,” Colombelli underlines. This is the case of Sabadell, Abanca and BBVA.

“After the halt in the formalization of mortgages, the banks continue to give loans,” he highlights, “but in some cases they have strengthened their filters.” In the words of Colombelli, “they are delaying the operations of the users who are in an ERTE or they put the exit of the worker from the file as a condition for signing the mortgage .”

As a general rule, the second quarter of the year is usually the one with the most mortgage operations.

This year, however, it is observed that in the third quarter more mortgages are being formalized than expected. “It is clear that the pandemic has not simply canceled activity in this area , but has delayed it,” says Colombelli. There are even those who “had real estate projects for this year and now they are accelerating them, in case there is a new confinement”, he observes.

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