Historic EURIBOR lows bring forward mortgage discounts

The 12-month Euribor is flirting again with historic lows. With one week left in the month, August's provisional average stands at -0.35%, very close to the record set just a year ago, when it stood at -0.355%.

And taking into account that in recent days has come to break the level of -0.37% daily rate, everything points to record a new minimum. The reference indicator for the majority of mortgages in Spain has accumulated three months of decreases, after reaching four year highs in May, at the height of the covid-19 pandemic on a global scale.

However, after the announcement of the European Central Bank (ECB) to take extraordinary measures to face a historic recession in the Eurozone caused by the coronavirus, the Euribor started again a downward trend that has brought it back to historical lows.

The highest monetary and financial authority in the common currency area announced in early June its intention to add 600,000 million Euros to the Pandemic Emergency Purchase Program (PEPP) which it approved after the outbreak of covid-19 and which initially had 750,000 million Euros.

Thus, the total amount rises to 1.35 billion euros. In addition, the body led by Christine Lagarde has extended its purchases at least until the end of June 2021 and has committed to continue reinvesting the principal of the securities that expire. On the other hand, it has kept interest rates at the minimum of 0.0%, which is the level they have been at since spring 2016. 

Since these measures became known, the 12-month Euribor has been falling continuously and now stands at around -0.37% per day.

Santiago Carbó, Funcas' Financial Studies Director, explains that "the Euribor is at a minimum mainly because the ECB has doubled its monetary facilities and the expectation is that the monetary policy will continue to be very accommodating for a long time. What happens with the indicator will depend on how long it takes to see an economic recovery and how fast it is. Before 2022 it is difficult to see significant increases, but if the recovery were to accelerate, they could come sooner".

And the good news is that the new record of the Euribor that is coming will mean a relief for the mortgaged people, because it will make the monthly payments of the loans cheaper, although it means a defeat for the banks.

As Juan Villén, head of idealist/mortgage, maintains, "the current levels of Euribor confirm that, after the brief mirage of a rise a few months ago, the expectations of growth of the European economy and of inflation remain at minimum levels, which, together with the immense debt accumulated by governments, makes rates return to historical lows, with no forecast of a rise in the coming months. This is undoubtedly good news for families with mortgages, although not so good for savers and banks".

Since the beginning of the covid-19 crisis, the financial sector has had to make multimillionaire provisions to cover itself against future defaults, which has led to historic losses for Banco Santander (in the first half of the year it lost more than 10,000 million Euros), while it has seen its portfolio of foreclosed assets grow for the first time in seven years. As if that weren't enough, experts predict a lower demand for financing from families and companies in the coming months.

With this scenario on the table, the financial sector keeps alive the mortgage war it has waged in recent years and which has been marked by very competitive offers in both variable and fixed mortgages. In addition, the list of entities that are betting on 'taking away' customers from the competition through mortgage subrogations is growing.

Original post: The Euribor returns to historical lows and brings forward mortgage reductions (idealista)