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After years being relegated by the fixed mortgage the variable is about to regain its splendor. Or, at least, the interest on the part of the bank. The Euribor, encouraged by the general feeling that interest rates in the euro zone will rise sooner than expected, is taking the first steps on its way up in search of a return to positive territory in a few months. An evolution that, predictably, will illuminate the return of the variable mortgage as a protagonist for the sector.
The fact that Christine Lagardepresident of European Central Bank (ECB), on February 3, no longer ruled out that this year interest rate increases in the euro zone could be seen, made the markets very nervous and has encouraged the Euribor, which this month turns negative for six years.
On February 4, as soon as Lagarde’s words were known, the 12-month Euribor rose to -0.346% from -0.423% the previous day, a significant rise in just 24 hours that is much higher than what it had recorded over the throughout the previous months, in which it was anchored at the -0.5% level. The week that is now closing has reached -0.31%.
Proof that something has changed for the index to which the vast majority of mortgages granted in Spain are referenced. All despite the fact that Lagarde has wanted to back down the following days to calm the spirits of the markets. “It would not solve any of our current problems,” Lagarde said last Thursday. In an interview given to a German newspaper in relation to a hypothetical rate hike and added: “On the contrary: if we act too hastily now the recovery of our economies could be considerably weak and could jeopardize employment. This wouldn’t help anyone.”
A kind of reversal in his words that is already very difficult to assume for a market that is betting on June as a possible scenario for the first rate hike of interest in the euro zone since 2011.
The fixed mortgage boom
The trend, meanwhile, looks up and makes it a real possibility to see the Euribor positive in a few months after six years moving in negative territory and lowering the price of variable mortgages signed years ago month by month.
And it is that until the Euribor entered the then unexplored terrain of below zero the most common thing for Spaniards was to sign a variable mortgage. In fact, thirteen years ago (last record available), in 2009, loans of this type represented 95.4% of the total, while fixed mortgages were 4.6%, according to data from the Statistics National Institute (INE). At that time, the Euribor was around 3% and had just fallen from the more than 5% it registered in 2008.
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Since then, the Euribor has experienced a real crash, going from those levels to 1% in 2012 and zero in February 2016. What happened next is a story well known by banks and mortgage holders. This evolution, negative for entities and positive for debtors, aroused the interest of banks in a product that had been more or less forgotten until then: the fixed mortgage.
This was gaining weight until it took on a relevant one in 2016, when it began to be glimpsed that the negative Euribor was not going to be a passing thing. Fixed mortgages began the year being 10% of the total and ended it representing almost 32%. A vertiginous change encouraged by the banking system, which already then began to promote the fixed mortgage against the variable one to achieve greater profitability and stop exposing itself to a repricing that over the months was going to be increasingly negative for the sector.
The resurgence of the variable
That is why now, when the prospects for the Euribor are much more promising, the interest of the banks is going to change again. Not in vain, for the entities it would not only be good news if the Euribor was positive, but any improvement in the index will already be favorable, since all the mortgages that are repriced in that rise to zero will also do so at favor of the bank
“The rise in short-term reference rates and their transfer to concession rates, as well as the subsequent repricing of balance sheet transactions, would allow recover the attractiveness of the variable rate within the banking sector, predictably increasing the prominence of these operations within the concession structure”, explains Martha Alberniconsultant in the Banking area of Afito EL ESPAÑOL-Invertia.
And it is that, as this expert adds, the scenario of negative rates “has been a drag on the intermediation margin of the banking sector”, which has led it to “strengthen the strategy of marketing fixed-rate mortgages, especially from 2020”.
The competition is still strong, as shown by the continuous price drops of these loans. Not surprisingly, the evolution of the Euribor has left as a legacy that mortgages are now cheaper than ever and banks are opening up to commercial strategies that go beyond lowering the price to try to attract customers. One of them is to grant financing for 90% of the price of the house or more, as this newspaper has been telling, something that has a cost in capital for the entities.
fatten up the margins
With everything, Euribor improvements do not have an immediate effect on banking margins. For them to notice it, a few months will have to pass, since the installments of all the variable mortgages that they have granted will be updated little by little (the usual thing is that the review of the mortgage takes place every six or twelve months).
“The importance of this rate hike for the recovery of bank margins and bank profitability is evident in the good performance that the sector has registered in terms of stock market valuation given the reinforcement of expectations of rate hikes in a shorter period of time”, adds Alberni.
100% mortgages: where to request them and which banks grant them.
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In fact, “despite the rises in the stock market have been widespread among banking entities, a better performance is observed of those that are better positioned in a context of rising rates by having a greater proportion of its balance referenced to a variable rate”. Notable is the case of Sabadellwhich since the words of Lagarde notes a 21% rise and accumulates fourteen sessions on the rise (+52%).
We will have to wait to see how the Euribor evolves in the coming months, because, although the trend is more notable this time and there is a basis to think of a nearby rate hike, it would not be the first time that the banks have their hopes up and encounter a new expansive policy by the ECB.
In recent years, several times improvement forecasts have been falling one by one, taking ahead commercial strategies of the banks, which is why now they prefer to be completely pessimistic and work as if that moment would never come until there is more clarity. Meanwhile, the variable mortgage is preparing for its resurgence.
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