Big Increases in Some Mortgage Rates, (EURIBOR 4,763% 7/9/2007)

The increases will do nothing to help the current situation regarding selling properties, and obtaining mortgages How do you see it  Patrick

Legal & Finance

Euribor scales new peaks By: Samantha Kett, thinkSPAINtoday

Good news for investors, but hardship could be on the cards for mortage-holders as interest rates creep closer to a record high. According to market intelligence gathered by research firm Servimedia, the Euribor – which acts as the base for mortgage interest rates in most EU member states, including Spain – has shot to 4.656 per cent. This is just short of its historic high between May and December 2000, when the rate fluctuated between 4.849 and 5.248 per cent. The latter figure was reached in August 2000 and remained above 5.1 per cent until November of that year, the highest rates seen since the Euribor was created in January 1999. The lowest-ever was June 2003’s 2.014 per cent. Experts say this month’s increase is the 23rd consecutive rise and the current Euribor rate has only ever been exceeded eight times.

 

 

John

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Interesting question John - will just polish off my crystall balls!!

If I was a betting man then my view would be that we will see at least one more increase in 2007 by 0.25% (in fact the annual Euribor setting for the month of September is 4.78%). I am in two minds as to whetehr there will be a further hike after that (some would say it is the Libran in me - private joke). However whether there is a second increase or not I think that rates will stabilise thereafter and during 2008 movement will be slight. Towards the middle to end of 2008 I think there is a likelihood they will start to ease - with the overide that it will be slow. Between 2002 and November 2005 (the first base rate hike) fluctuations were very slight.

Certainly interest rates are beginning to bite here in Spain and there are arguments that the socialist government is having a detrimental effect on the Spanish economy - salaries here are generally low in comparison with the rest of Europe - sure there are some high fliers but across the board income levels and disposable wealth are less than elsewhere. That will have an effect on demand for housing to buy throughout Spain - whether to live or whether for investment. One of the reasons the Spanish became home buyers is because they realised it was cheaper to buy than to rent and with development of the country post Franco incomes improved and wealth was more evenly distributed. If it is cheaper to rent than to buy then the Spanish will return to renting. This comment relates to all Spain - not just the toruist resorts so dont think there will suddenly be huge demand for rental property on the coasts.

The question you are asking I guess is how does this affect property prices. Well my view which will come as no secret is that across the board property is generally over priced - there has been massive over supply in certain sectors (principally 2 bed 2 bath apartments). Nonetheless location will always sell here and good property will get the right price as long as it has the special something -. not necessarily the wow factor - just something special that will sell it if it is priced right. Whether house or apartment. Central Marbella I believe is almost recession proof  (I just know there is going to be an argument here) - "deals" that come across the table in Marbella centre get done in a bar over a coffee and dont even hit the market - huge rental demand (still!!) and thus those with a few bob stashed away will pick up the deals of the century - the rest will ride out the storm and if prices generally in the middle of town arent dropping then it has a self supporting effect - if that makes sense. Outskirts of Marbella are heading for a fall of some degree - while areas like Elviria and Cabopino are beautiful the amount of property for sale is phenomenal - developers are starting to offer "discounted" packages - then again if it was overpriced in the first place what does discounted mean - if a developer says he will sell a property for 400,000€ that was previously being sold for 500k is it a good deal - maybe; but probably not. It probably means it was over the money at 500k in the first place - if it is offered at 350k then it might, just might be a good deal. The honest answer is one mans meat is another mans poison but fools rush in ........ RESEARCH, RESEARCH RESEARCH - IF IT SOUNDS TOO GOOD TO BE TRUE IT PROBABLY IS.

Was talking to a guy last week who was offered one of these special deals with a view to investing his hard earned and taking it on mortgage. Using the illustration of a 400k interest only mortgage with monthly payments of approx 2000€. He wants to use it one month a year and then rent on long term contract for the remainder (impractical if not impossible). Nonetheless I explained that with the volume of stuff available for rent the most he would be looking at for rental would be 1000€ per month (where he was thinking of buying). So already he is down 1000 per month. Add to that community fees, IBI, maintenance etc and probably he is looking at an outlay of 20,000€ per annum that he has to fund himself. His original view was that he would buy for capital growth principally but it would need it to almost wash its face (to use the teminology of a good friend). You can see it is going to have to grow appreciably in quite a short period of time to justify the investment. The 63.5 million dollar question is how long will it take and by how much wil the market appreciate during the next 5 years.

All this talk of doom and gloom does not make me negative - purely a realist. Would I spend money on property in Spain - without a doubt yes as long as it was in the right place,  in the right development and at the right price. The smart money is buying here - right place and right price. There are deals out there to be had and there are some serious players picking up exceptional deals but these are very shrewd practised people, well experienced in what they are doing. Would I gamble my life savings on an apartment to make a quick buck - without a doubt no!!

Here endeth the sermon and the waffle and my apologies if I have put anyones nose out of joint

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Smiley,

Yet again good sound comments. Time will only tell re predictions on Euribor rates, but I have seen/heard similar comments elsewhere & suspect you will will not be far off the mark.

John 777.

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Thanks John - it is a little difficult to predcit these things and for every economist in the world it is impossible to always be right - if so there would be no economic hardship anywhere in the world and no winners or losers - I like to think I have a reasonable handle on it having spent the best part of 20 years working as a broker in an interest rates derivatives house from the back end of the seventies through the nineties - never worked sterling but fundamentals tend to be the same and the land of the Deutschmark is highly influential on the Euro and I am very familair with cross currency stuff having broked Swissfrancs as well. Anyway what will be will be so guess whatever we do wont make any difference. 

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