73% of the new mortgages that are signed are already at a fixed rate, but most of the outstanding balance that remains to be paid is still at a variable rate
The bank showcase has moved in recent years to the rhythm of the Euribor. With the indicator in negative since the beginning of 2016 in an environment of low interest rates, fixed rates began to gain ground in new loans signed.
Specifically, they have gone from accounting for just 10% at that time –compared to the 90% that were around the variables– to become the preferred option of customers, on an upward path that has led them to represent 73% of new loans that were signed in June, compared to 27% of the variables, according to INE data.
Despite the growth of these new fixed loans, most of the mortgages that remain to be paid are still variable. In total, more than 4 million, which represent 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 are referenced.
But, who and how calculates this index that determines the interest that a client must pay for his mortgage? The Euribor (Europe Interbank Offered Rate) is an indicator of the average rate at which banks lend money to each other in the interbank market, to which they turn if they need cash at a certain time.
When these operations exceed 10 million euros, the entities (a selection of the 18 largest Europeans and the British Barclays) transfer the interest data applied the day before to the European Institute of Monetary Markets (IEMM). With these data from each bank, the institution eliminates the highest 15% and the lowest 15% of the sample to perform a weighted average and thus establish the Euribor.
why does it go up
The calculation is transparent. But why is the indicator's recent sharp rise taking place? Behind this movement is the new cycle of interest rate hikes by the ECB. And also the expectations that the monetary institution will not lift its foot from the accelerator until inflation, now at 9.1% in the euro zone, is consolidated at the 2% medium-term objective.
From the comparator Kelisto.es they remember that it is necessary to take into account that the movements of the Euribor are closely related to the decisions of the monetary organization. The explanation is simple: the ECB also conducts auctions to make money available to banking entities that, in turn, must make it reach 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 cash in the interbank market, always looking to apply a margin to get some profit.
In other words, if the monetary institution raises interest rates, banks will also apply higher costs when lending money to other entities, causing the average with which the Euribor is calculated to rise.
In addition, the economic uncertainty itself can also play against the mortgaged, 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 in other moments of greater optimism around the cycle economic.
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 interbank battle.