Euribor Favourable To Borrowers In Spain
There were encouraging signs for investors requiring a Spanish loan or mortgage, when it was reported that the 12 month Euribor had remained virtually unchanged during the first two months of 2018, closing at -0.191% at the end of February. This was despite the banks’ swift reactions in January to the rise in the long term interest rates following concerns that fixed rates offered by banks were too low. Created on the introduction of the Euro as a currency in 1999, Euribor is the benchmark that indicates the average rate at which major banks lend unsecured funds for a set period, within the euro interbank market.
Since its launch the Euribor has played an increasingly important role in decisions of monetary policy. In its aim to protect currency and financial stability within the euro-zone the Euribor provides a general reference to lending rates both to SMEs (small to medium-sized enterprises) and to individual householders. One of the main lending banks did announce an increase on a fixed rate ten year standard application from 2.05% in November 2017 to 2.3% in February 2018, its variable rate, however, remained unchanged at Euribor plus 1.95%. Other lenders raised fixed rates by 0.1% throughout the first two months of the year, but, so far, March has seen no increase. General speculation is that the Euribor will remain the same until at least the middle of 2019. This is especially good news for investors seeking mortgages as the Euribor is at a practically unprecedented low.
(picture courtesy of theleader.info)
Despite a slight hike in fixed rate mortgage deals, borrowing in Spain is still very cheap and, a 25 year mortgage of 100,000€ at a fixed rate of 2.5% costs approximately 448€ per month. Mortgages are available for up to 70% loan-to-value but better terms can be secured for loans of 60% or less. Lenders usually calculate how much an applicant can afford by taking into account 30-35% of their total personal income after tax. Liabilities including: existing mortgages, bank and car loans, maintenance or alimony and school fees are all considered when deciding how much can be borrowed. Any outstanding credit card balances must also be cleared by the applicant before approval, even if it is a 0% interest deal. Net income is usually calculated from employment, pension or, possibly, investment income. Rental income on the new property will not generally be considered as part of the calculation, however if there is income from existing rentals on multiple properties this may be counted provided separate, audited accounts are available. This profit is usually subject to submission of a tax return to substantiate the additional income.
When applying for a mortgage, the applicant needs to be aware that the property purchase could be slowed by the process. In this case an “Agreement in Principle (AIP)”, if offered by the lender, could be advantageous when negotiating with a vendor. This is effectively a guarantee that funds would be available once a suitable property is found and all necessary surveys completed. It must be remembered that there may also be additional bank, local taxes and legal fees applicable to the cost of raising a mortgage, but, with expert legal advice the whole process can be undertaken easily to enhance the buying power of any potential investor in the thriving and highly lucrative Spanish property market.