Posts Tagged ‘Euribor’

 

November 28th, 2009

I recently read an interesting interview with Mikel Echavarren, head of Irea, a Spanish real estate consultancy, talking about the state of the real estate sector in Spain. As an experienced professional in touch with many different companies in the sector it is worth listening to what he has to say. Here is a selection of comments from his Q&A with Idealista News, the news section of the property portal Idealista.

Do you think there are any good investment opportunities in Spanish real estate today?
I think so but they are risky. In three years we’ll probably be kicking ourselves for not advising investors to invest now. There aren’t many opportunities in commercial real estate because there isn’t much product and rents haven’t yet adjusted. In residential, on the other hand, the correction has been very strong and fast. The ideal profile now is an opportunistic investor buying properties off banks by taking on the existing debt, a type of real estate venture capital.

So you think there are opportunities in a residential sector because the adjustment has already taken place?
There are hundreds of thousands of possible transactions, but not many genuine opportunities. What there is not is any financing, so anyone who wants to take advantage of this market has to take the debt with the asset, but there are still very few people prepared to do that today.

Has the price of housing and land touched bottom?
House prices touched bottom some time ago, they have already fallen all they had to fall. And the price of land has fallen faster than house prices although it could even fall a bit more. We have been saying at the top of our lungs that the price statistics published by the government are worthless, and damaging to the sector because they give international analysts the impression we are a country of idiots. In the US and the UK prices have fallen around 20% from the peak whilst here we have only fallen by 8%. We work with close to 28 property companies that have been restructured, and you see that valuations are down 30% in 2 years, and then banks buy those assets with discounts of 10-15% off valuations.

Do you think there is any residential property that will never sell?
What there is is a stock of land that will never be sold, at least not in 10 years. There are areas of Spain where the town plans look like they were designed for an invasion of extraterrestrials, parts of Almeria, Murcia and Alicante. There is an overdose of land that will lie in the warehouses of banks for many years. On the other hand, the stock of finished property will be absorbed sooner.

Is there any real demand for housing at the moment?
Yes, quite a few homes are being sold. We would have to place it at more than 200,000 homes a year. What is not selling is off-plan, as there you take the risk of the developer or builder going bankrupt. It’s a good time to buy newly built homes with Euribor at 1.24%. They won’t be any cheaper next year. And when prices start to rise they will do so at a rate of 10% per year.

How does one get the Spanish property sector to recover?
The residential sector is already recovering, just not the developers, who won’t see the light at the end of the tunnel for three years; it is very bleak for them. Clients of ours tell us they have sold a lot this summer, and some banks tell us that they have had more mortgage requests this summer than in all 2009. Furthermore, we believe that developers have dropped their prices to the minimum. There is mortgage financing available, not much, but there wasn’t any at all in 2008, and now there is. Mortgage costs are low, and it appears that the future is not going to get any worse. The recovery is underway, although this won’t show up in the official statistics until the first half of 2010. As soon as there is a general perception that things are getting better, house prices will stop falling and start rising.

Story from Idealista News

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November 25th, 2009

Euribor (12 months), the interest rate normally used to calculate mortgage payments in Spain, fell 1.4% in October to a record low of 1.243%. It has now fallen for 13 consecutive months, and is 76% lower than it was a year ago.

Monthly repayments on a typical annually-resetting mortgage (150,000 euros, 25 years) will drop by around 300 euros a month, or 4,000 euros a year, to 640 euros/month. Significantly lower monthly mortgage repayments have given many borrowers financial breathing space they did not have when Euribor stood at 5.26% in October last year. Estate agents report this is taking some pressure of the property market, by reducing the number of forced sellers. Many more borrowers can now afford to take their homes of the market in the hope of selling when the market recovers.

The average value of new residential mortgages signed in August fell 19% to 11,753 euros compared to the same time last year. The number of new mortgages signed by 6.6% to 52,482. Fewer, cheaper mortgages put downward pressure on property prices. The average interest rate on new mortgages in August was 4.3%. Interest rates from banks (4.15%) were better than savings banks or cajas (4.46%).

Many analysts expect Euribor to continue falling until the early part of 2010, further reducing the cost of money to Spanish mortgage borrowers.

Story by Mark Stucklin

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October 9th, 2009

Euribor (12 months), the interest rate normally used to calculate mortgage payments in Spain, fell 5.5% in September to a new record low of 1.261%. Euribor has now fallen for 12 consecutive months, and is 77% lower than it was a year ago.

Monthly repayments on the average annually-resetting mortgage (150,000 Euros, 30 years, Euribor +0.85%) will drop by around 435 Euros a month, or 4,150 Euros a year, to 555 Euros/month. However, many borrowers will not benefit thanks to clauses in their contracts that set a floor for interest rates.

There were 58,995 new residential mortgages signed in July, 19% less than a year ago, according to figures from the INE. In the first 7 months of the year new mortgages were down 30% compared to the same period last year.

The fall in new residential mortgages appears to be bottoming out (year-to-date in May -35%, -31% in June, and -30% in July). In value terms, new mortgage lending fell 34% to 6.7 billion Euros in July, or 41% in the first 7 months of the year.

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September 1st, 2009

Euribor (12 months), the interest rate normally used to calculate mortgage payments in Spain, fell to a record low of 1.334 percent in August, down from 1.41 percent in July. Euribor is now 75 percent lower than it was this time last year, when it stood at 5.323 percent, leading to significant savings for mortgage borrowers on annually resetting mortgages.

After the fall in August, Euribor has now fallen for eleven consecutive months, setting a new record low in each of the last 6 months. Euribor has gone from record high to record low in the space of a year. However, mortgage experts do not expect Euribor to drop much further from here, certainly not below 1 percent.

Thanks to the latest drop in Euribor, the average borrower can expect to save around 316 Euros per month, or more than 3,800 Euros per year, on mortgages that reset around now. But consumer groups have complained that many banks are not passing on falling rates to customers, using the opportunity to raise the margins they charge borrowers.

Nevertheless, Spanish consumer group CECU has urged borrowers to use the fall in base rates to try and remortgage, noting that the number of people doing so is up nearly 65 percent compared to last year. CECU has also called on borrowers to report banks for including illegal clauses in mortgage contracts.

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July 6th, 2009

Euribor (12 months), the interest rate normally used to calculate mortgage payments in Spain, fell to an all time record low of 1.61% in June, down from the previous record low of 1.644% in May. This will bring relief to borrowers on annually resetting mortgages.

On a daily basis Euribor finished the month at 1.504%, another all time low, suggesting that Euribor’s downward trend has not yet run out of steam.

After the latest fall, Euribor is now 70% below where it was in June 2008. That means savings of around 3,400 euros per year for the average borrower with a mortgage resetting now.

A year ago the average mortgage value was 141,939 euros, according to the National Institute of Statistics (INE). With Euribor then at 5.361%, 3.75 points higher than today, monthly repayments on the average 25-year mortgage were around 860 euros. Today the repayments should have fallen to around 575 euros, a saving of 284 euros a month, or 3,400 euros a year.

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June 3rd, 2009

Euribor (12 months), the interest rate normally used to calculate mortgage payments in Spain, fell from 1.771% in April to 1.644% in May, a percentage change of -7.2% month to month, and -67% year to year.
After eight consecutive monthly declines, repayments on the average annually resetting mortgage based on Euribor will fall by 2,280 Euros a year.

According to the National Institute of Statistics, the average Spanish mortgage is 119,000 Euros, Euribor +.075%, with a 26 year term. Monthly repayments on mortgages resetting to May’s Euribor will fall by 223 Euros to 512 Euros per month, a major relief for many of Spain’s hard pressed borrowers.

Euribor has started June with further falls.

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May 6th, 2009

Euribor (12 months), the interest rate normally used to calculate mortgage payments in Spain, fell from 1.909% in March to 1.771% in April, a percentage change of -7.2%. This is the lowest that Euribor has ever been, and is 63% lower than it was a year ago. Compared to July last year, when Euribor peaked at 5.393%, Euribor has fallen by 67%.

After the latest drop in Euribor, borrowers with annually resetting mortgages should see their annual mortgage repayments fall by between 3,000 and 5,800 Euros, in theory at least.

In reality, however, some borrowers complain that their payments haven’t fallen at all, and in some cases, have actually risen. This may be due to banks using a derivative of Euribor, such as a moving average, that lags the fall, or due to other malicious conditions buried in the small print (and so beloved by mortgage lenders), such as interests rate ‘floors’ below which mortgage rates cannot fall.

Euribor is derived from the European Central Bank (ECB) base rate, which is currently at 1.25%. The markets are expecting another interest rate cut in May, so that is already baked into the current Euribor rate. Experts expect Euribor to keep falling in the coming months to around 1.25% at the end of the year.

Story by: Mark Stucklin

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