All variable rate loans in Spain are based on the European indicator, the Euribor (Euro Interbank Offered Rate). The Euribor rates are based on the interest rates at which Europe’s largest 30 banks borrow funds from each another. At least that’s the idea, but in realty the rates are based on bank surveys, not the actual average amount of each transaction.
Due to the continual decrease in the current Euribor, the average Madrid household has saved €200 with a decrease of €18.33 per month.
Interest Rate Manipulation by European Banks
The biggest difference with the new Euribor Plus is that it will be based on actual bank transactions, not numbers offered in surveys. In the opinion of some experts, this will help eliminate bank manipulation when determining interest rates. Just this past year, Barclays, JP Morgan, HSBC and Credit Agricole were all fined for manipulative practices. It’s also touted as a more transparent indicator than its predecessor.
Affects of Euribor Plus on Mortgage Lending in Spain
There are diverse opinions on how the new Euribor will affect mortgages in Spain and the rest of Europe. Some experts expect little change while others are concerned about big increases in the lending rate, considered one of the reasons the introduction of the new Euribor has been significantly delayed.
Nobody is sure as to why at this point a new Euribor is being introduced or if it’s 100% legal. Those who signed variable rate mortgage loans in Spain have the old Euribor on their contract. Can you just make up a new indicator and replace it? When rates were high and banks were making a killing on mortgage loans nothing was introduced to modify the indicator and give relief to Spanish households. Some believe this new indicator is being created to favor banks, so they can make more interest on their loans. This may or may not be the truth.
Once available, this may be a good time to take advantage of Spain’s new mortgage law, which allows you to change your mortgage from variable rate to fixed rate with much less hassle and expense. This would eliminate the risk of fluctuating interest rates with the new Euribor Plus.