73% of new mortgages taken out already have a fixed interest rate, but the majority of the outstanding balance still to be paid still has a floating interest rate
In recent years, the bank showcase has been moving to the rhythm of the Euribor. With the negative indicator since early 2016 in a low interest rate environment, fixed interest rates started to gain ground in new loans signed.
In particular, from just 10% at the time – compared to the 90% that were around the variables – they have become the preferred option of customers, on an upward path that has resulted in them accounting for 73% of new loans being signed in. June, compared to 27% of the variables, according to INE data.
Despite the growth of these new fixed loans, most mortgages to be paid are still variable. More than 4 million in total, representing about 75% of the current outstanding balance, according to data from the Bank of Spain. Hence the enormous concern about the sharp rise in the Euribor to which they refer.
But who and how calculates this index that determines the interest that a customer has to pay for his mortgage? The Euribor (Europe Interbank Offered Rate) is an indicator of the average interest at which banks lend each other money on the interbank market, to find out where they knock as they need money at some point.
When these transactions exceed EUR 10 million, the entities (a selection of the 18 largest Europeans and the British Barclays) transfer the interest rate data applied the day before to the European Institute of Monetary Markets (IEMM). With this data from each bank, the institution eliminates the top 15% and the bottom 15% of the sample to create a weighted average to determine the Euribor.
The calculation is transparent. But why is the indicator’s recent sharp rise? Behind this move is the new cycle of interest rate hikes by the ECB. And also the expectation that the monetary institution will take its foot off the accelerator until inflation, now 9.1% in the eurozone, is consolidated to the medium-term target of 2%.
From the comparator Kelisto.es they recall that it must be borne in mind that the movements of the Euribor are closely related to the decisions of the monetary organization. The explanation is simple: the ECB also holds auctions to make money available to banking entities, who in turn have to bring it to consumers through loans.
It can be said that the price at which these auctions are held determines the interest rates. And the banks, once these operations are closed, can move that money into the interbank market, always looking for a margin to make some profit.
In other words, if the monetary institution raises interest rates, banks will also charge higher fees when lending money to other entities, increasing the average used to calculate the Euribor.
Moreover, economic uncertainty itself can also play against mortgages, because if an entity fears a slowdown, it will be more reluctant to lend to another, or at least to do it as cheaply as at other times of greater optimism around the economical cycling.
In short, in addition to the movements of the ECB, the sentiment of the market itself can also influence the evolution of the Euribor. And today, pessimism seems to be winning the battle between banks.
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
