Iran War Fuels Eurobor Rise & Mortgage Rate Increases
The Euribor rate, a key benchmark for variable mortgage rates in the Eurozone, is experiencing a significant increase, triggering the first rise in Spanish mortgage payments in two years. The surge is directly linked to the ongoing conflict in the Middle East involving Iran, Israel and the United States, reversing a period of declining mortgage costs.
The rise in the Euribor mirrors trends observed following the outbreak of the war in Ukraine, signaling a return to economic conditions not seen for some time. The indicator has climbed sharply in March, beginning the month at 2.2% and surpassing 2.9% as of Tuesday, representing an almost 50% increase in a single month. This upward trajectory is expected to continue.
Analysts attribute the increase to market anticipation that central banks will be compelled to raise interest rates in response to the current geopolitical climate, thereby increasing the cost of credit. Daily Euribor data has recorded two of its largest single-day increases since its inception, including a nearly two-tenths of a percent jump on Tuesday.
For a 150,000 euro mortgage with a 25-year term and a differential of one percentage point above the Euribor, the estimated monthly payment will be approximately 760 euros, an increase of just 6 euros compared to the same period last year. This comparison is made annually, as most mortgages are adjusted on a yearly basis.
Even as the immediate increase is modest, the trend is concerning. After nearly two years of decreasing mortgage payments, March marks a turning point, with payments poised to rise each month. If the Euribor remains at current levels, April’s increase is projected to be 26 euros per month, followed by over 30 euros in May, with further increases anticipated.
The Euribor’s impact is primarily felt by those with variable-rate mortgages, which, while less common now, still account for approximately 60% of the total outstanding mortgage debt in Spain. In recent years, there has been a growing preference for fixed-rate mortgages, offering protection against Euribor fluctuations and providing payment certainty throughout the loan term. Currently, two out of every three new mortgages are fixed-rate.
Recent escalations in the conflict have included extensive strikes carried out by Israel and the United States across Iran, described as “unprecedented” by Al Jazeera. These actions, coupled with ongoing tensions and the broader geopolitical instability, are contributing to the market pressures driving up the Euribor. Iran War Maps, tracked by the New York Times, illustrate the complex and evolving nature of the conflict in the Middle East.
Meanwhile, Israel’s actions in South Lebanon are being viewed as a means of exerting pressure on the Lebanese government regarding Hezbollah, according to France 24. This adds another layer of complexity to the regional dynamics influencing global financial markets. CNN reports that the conflict between the US and Israel with Iran is now in its 14th day, with the situation remaining fluid and uncertain.