The Euribor is one of the reference parameters of the market that hits the pockets of the Spaniards the most, but is largely unknown to most, and which raises considerable perplexity among those who have to take out a mortgage to buy a house.
The escalation experienced this year by the twelve-month Euribor, which is the index to which most variable mortgages in Spain refer, has aroused great concern among the population.
It has rocketed to above a daily rate of more than 3%, the highest since January 2009, in recent days.
In the average monthly rate, the indicator went from -0.502% in December 2021 to 2.828% in November (latest full month available).
The main consequence of this sharp increase in the Euribor was the rapid increase in the cost of variable mortgage installments.
In just one year, these taxes have become more expensive by around 260 euros per month, or about 3,100 euros per year.
And all this, as a consequence of the accelerated change in the monetary policy of the European Central Bank (ECB) which, with the aim of controlling inflation, has undertaken intense increases in interest rates.
-But what is the Euribor?
Euribor is the European Interbank Offered Rate (Euro Interbank Offered Rate) and reflects the price at which European banks lend money to each other in the interbank market.
-How is it calculated?
The Euribor, published for the first time on 30 December 1998, a few days before the introduction of the euro, is calculated daily.
The European Money Market Institute (EMMI) quantifies it by taking into account the average interest rate of real transactions to which money is lent by the main financial institutions in the euro area.
Financial institutions use different interest rates depending on how long the money is being lent.
This is why there is no single Euribor. There are several according to maturity; one week, one, three, six and twelve months.
In Spain, the Euribor for one-year mortgages is normally used as a reference for mortgages.
-Why is the Euribor linked to the evolution of the interest rates of the European Central Bank (ECB)?
The ECB itself explains that interest rates fix the rate at which the institution lends money to banks.
Therefore, the rates represent the cost of the loan.
Thus, by raising the ECB’s interest rates, the cost of bank financing increases.
As a result, institutions are increasing the types of loans they grant to the sector itself, to businesses and to individuals.
Similarly, experts point out that the Euribor usually anticipates what the key interest rates set by the ECB will do.
If they expect rates to continue rising, banks raise interest on loans, which causes the Euribor to rise again.
-What is the relationship between Euribor and mortgages?
As the Bank of Spain points out, when taking out a mortgage, the customer can choose between several options: fixed, variable or mixed rate.
In the case of the fixed rate, the amount to be paid on the loan will always be the same for the entire duration of the loan, and whether the Euribor rises or falls.
However, in the case of a variable or mixed mortgage, taking the Euribor as a reference, the amount to be paid will be reviewed (usually every six or twelve months), and will depend on the price of the index at that moment.
In this modality, the commission to be paid to the bank for the loan will depend on a fixed part that is negotiated with the entity, plus the evolution of the Euribor.
If the Euribor goes up, the mortgage payment will increase, while if it goes down, the amount will decrease.
-Are there other indices similar to the Euribor?
Since the end of 2019, the calculation and publication of a new benchmark index called €STR has started. Its meaning is Euro Short Term Rate (Euro Short Term Rate, in English).
The ECB considered that this rate could be adjusted as an alternative to the Euribor, should the latter not be available.
-What indices are used in the rest of Europe?
According to sources from the Spanish Mortgage Association (AHE), even in the rest of Europe the most used benchmark is the Euribor.
The difference with Spain is that in other countries of the Old Continent they use expiration references other than twelve months.
Similarly, in countries such as France or Germany, most mortgages are fixed-rate contracts, so the evolution of the Euribor affects them to a lesser extent.
