Euroregion to close January at new record low

Published on February 3rd 2017

The biggest danger of inflation is that it jeopardizes macroeconomic stability and forces the central bank to raise interest rates, slowing growth and job creation.

The 12-month Euribor, the most used indicator in Spain for the calculation of mortgages, is expected to close January at an average rate of -0.09%, so that these loans will be reduced by about 72 euros per year.

When two sessions are due to conclude the month and the exact calculation of the average can be carried out, which will be confirmed by the Bank of Spain next Wednesday, January will become the twelfth consecutive month in which the indicator closes in negative territory.

Throughout January, the euríbor has oscillated between the lowest mark on Thursday, -0.102%, and Monday's high, -0.083%.

The estimated saving of 72 euros is due to a year ago, in January 2016, the indicator was at 0.042%, thus an average mortgage of 100,000 euros contracted to a term of 25 years that is now reviewed in February will benefit from a discount of about 6 euros per month or about 72 per year.

The first time the euríbor closed a month in negative was in February of 2016, when it fell to -0.008%; The first negative daily rate was February 5 of that year, and since then the indicator has continued to decline.

Faced with this unprecedented fact, in Spain opened the debate on whether the banking would end up paying customers for mortgages, something that will not occur taking into account that the institutions always apply a differential to this indicator, whose evolution depends on the increases or Rate cuts approved by the European Central Bank (ECB), which currently keeps them at a historic low of 0%.

A rate that, predictably and according to experts believe, will remain at current levels for quite some time, which will help to keep the euríbor down.

With the successive drop in the indicator at negative rates, banks have taken steps to protect their business, such as the spread of the differential that is applied or the introduction of a zero clause in variable rate mortgages.

With this clause, which sets a minimum interest rate of 0%, together with the spread applied, the sector is guaranteed to charge for the loan granted to the client.

In Spain, the lowest differential to which a mortgage has been generally sold has been 0.17 percentage points, so that the Euribor a year would have to sink a little more than that so that once the differential has been applied, Interests were negative.

The indicator has been falling for several years, since September 2008, when it reached a record high of 5.5%; Last December stood at -0.08%, a minimum that is expected to be beaten again in January.

Source: Expansión