Does a Zero Rate Euribor Affect Your Mortgage?

What mortgage should I get with a negative Euribor?

The Euribor has reached zero and continues its downward path, an unusual scenario which causes troubles to banks in an inauspicious time for retail businesses. The variable rate mortgage, with a calculation formula stipulated by adding a spread to Euribor, will experience a surprise in the coming months: the applicable Euribor may have a minus sign in front of it.

What effect would this have on fees? A charge for being mortgaged, a reduction in the monthly payment or no effect at all? If the absolute value of Frozen Euribor overtakes the differential one, the applicable interest rate would be negative, implying getting money for having borrowed, according to the opinion of some. After all, there are banks that pay other financial entities to lend money, and this paradox makes the Euribor and other market interest rates very cold. But the banks have already made clear that to “pay for borrowing” is “contradictory” and that, in any case, the courts are the ones to decide.

Although it might happen that financial institutions have to pay the mortgagor, only a few customers could experience the happiness of actually receiving money. Customers who took Deutsche Bank mortgages, to a spread of 0.17%, or Bankinter, with its extinct Euribor offer of +0.18%, are the type of borrower who might experience the effect of negative rates. Those with ordinary mortgages may opt for a reduced share, with interest below the agreed differential. The effect would be invalid if the writing of a mortgage establishes a floor clause, which immunizes the monthly fee from negative rates. In these cases, consulting a lawyer to analyze if a lawsuit against the bank is viable is a good thing to do.

What if I’m thinking about asking for a mortgage?

The yield curve that benefits many mortgagors may hurt new applicants. 2016 is going to be the year of real estate, but it is going to takeoff gradually. Banks want to attract creditworthy customers and compete in the mortgage market, but this effect may be mitigated if the negative rates scenario continues.

In the first place, the reduction of spreads has stopped, according to data handled by the financial portal, Euribor + 1 was the one to beat this year, but banks have frozen the lower rate offers. It is not plausible to see lower spread mortgages until the Euribor value rises again, even if only slightly. This is a bad panorama for those who had planned to finance their home when mortgages were cheaper.

In addition, to wait for a rebirth of floor clauses is not unreasonable. The floor clauses are not illegal; what does not comply with the rules is to hide its effects on the calculation of the monthly installments from clients. A “zero clause” agreement has been established which means that the mortgage interest will never descend below zero. It could be only a matter of time before some banks take the leap to provide limitations on the descent of moderate interest rates, not much above 1%.

Banco Santander has innovated and may set a trend: it states that the rate is fixed for the first two years, namely 1.75% nominal. Two years is not a term that seeks to benefit the customer who pays fixed fees, but to protect the bank from a negative Euribor during this time.

But not everything is bad news for those who want to get a mortgage this year: there are several banks offering mortgages with fixed or mixed stable rates below 3% or even 2% depending on the bank and the client. 1.75% for two years is a bad choice; but a safe 2% for ten or more years is an option to take into account. In the mortgage North Pole, those who know how to wrap up with the training and information coat, will arrive safely at their destination: just paying a fair amount for the money borrowed.


N.B. This article is for information only and should not be treated as financial advice.

Europe and its Institutions need to be more credible, says Montoro

Treasury Minister Cristobal Montoro
Treasury Minister Cristóbal Montoro

Spain’s Minister for the Treasury and Public Administration Services, Cristóbal Montoro, said that “we must improve the credibility of Europe and its institutions”, and defended the need to step up the reform of certain European bodies in order for them to act. The minister added that the economic crisis “has been caused by a lack of budgetary and financial discipline in several countries within the eurozone that were not warned of the risk behind such borrowing, and the failure to apply discipline”.

Cristóbal Montoro said he believes there is a need “to promote reforms in Spain and in the European institutions that do not favour opportunist operations”. The Spanish political project must fit into that “reformed and integrated” European scheme “that will lead to growth. We wish to commit ourselves to stability within that Europe”, said the minister.

In his speech in the Lower House of Parliament during the debate on the budgetary expenditure ceiling for 2013, the Minister for the Treasury said that “today, we are talking about creating a competitive Spain, with no internal imbalances, that does not depend on foreign financing and all within the framework of the European Union”. Regarding the great single currency project, he said “we are talking about strengthening the euro because Europe makes no sense without its currency”. “Europe will be created with the currency or it won’t be created at all”, added Montoro.

La Moncloa reported that, according to Montoro, next year will be the last year of recession. “There is no more time left for financing inefficient public administration services”, he said. 2013 will be “a tough year of adjustments, although the fall in activity will be more moderate” than in 2012.

A budget for recovering from recession

The minister stressed that the budget for next year is solely aimed at ending the economic recession in Spain and at setting an expenditure ceiling, “which involves each and every one of the regional governments for the first time ever”, and that forms part of the structural reforms needed by Spain. “It is not a question of losing anything but rather of gaining a present, capacity and a future”, he added.

Cristóbal Montoro also highlighted in his speech that the public deficit will be corrected in order to achieve growth and create jobs. He said there is a need to stop obtaining financing from other countries, which is what has caused the economy to falter. “We need to grow on the basis of our own financing, our own savings”. To that end, he recalled that the Government is committed to correcting the public deficit while bolstering economic activity and without incurring further job losses.

The Minister acknowledged that the risks hanging over the economy are grave, and said that “we are once again holding out a hand to the political groups. We believe in consensus, we recognise the gravity of the situation. We need to agree, commit to flexibility and to dialogue”.

The expenditure ceiling

The limit on non-financial spending by the State in 2013 was set at 126.79 billion euros, an increase of 9.2% due to the effort needed to service debt that will increase by 9.11 billion euros, and the additional 6.69 billion euros that will be needed by the Social Security system.

If these items were excluded, the expenditure ceiling would drop by 6.6% to 73.26 billion euros.

Forecast non-financial revenue for the State in 2013 amounts to 124.05 billion euros and the financing of regional governments through the expenditure budget amounts to 35.31 billion euros.

Expenditure made available to ministerial departments will be reduced by 12.2% to 31.06 billion euros.

Article source:

Rates are reasonable, credit is still available and the sun is shining

IMS - International Mortgage SolutionsThis week has seen plenty of news about Spanish banks with little tangible substance or change to the status quo.

Germany has finally approved the 100bn bailout for Spanish banks but there still remain some differences of opinion as to exactly how the funds will be used. Who will require funds will be determined after the more detailed audit due to complete end of August being undertaken by an outside consultancy company. Almost certainly a Bad bank will be created for banks to place their stock in as has happened in Ireland.

Spain itself continues, despite the agreements for the banking system, to suffer in the bond market paying a high price for even 5 year bonds on Thursday.

Bankinter announced half year profits down on previous year but this included the setting aside of money to allow them to meet the 9% core capital ratio required by next year thus suggesting they are in a stronger position than some of their counterparts.

Bad debt ratios for Spanish banks climbed again at end of May, according to this weeks published figures and house prices and overall gross lending also fell.

Spains Banks, in general, say they expect to continue to offer new mortgages throughout this year and do not see the situation worsening. All banks however are giving preference to clients who buy bank owned stock rather than those buying private sales when it comes to the granting of loans.

Despite this 70% loans remain available for the right profile client and the market seems to have flattened out at a general 60% loan to value for private purchase and nonresident applicants. This may change if banks become concerned about further falls in house prices.

Average rates are 4.5% held at this level by the 12 month Euribor rate which is expected to hit a record low next month.

On the bright side, property choice is abundant at present and it is now the case that valuations above purchase prices are being seen on a more regular basis indicating some vendors desire to sell at very realistic prices. Rates are reasonable, credit is still available and the sun is shining.

International Mortgage Solutions

Tighter regulations for Spain’s banks?

The European Central Bank
The European Central Bank

The last few days have seen the announcement of an immediate package of € 30bn from the Europe for injection directly into the Spanish Banks.

One of the areas the Spanish Government have had to agree to, to allow the rescue plan to move forward  is the immediate transference of regulatory power from the Bank of Spain to the European Central Bank.

Some will argue this is a gradual but clear chipping away of sovereign power and the start of things to come.

At ground level the more immediate questions are what impact this will have on mortgage lending in Spain.

Mortgage lending and advice in Spain currently is unregulated. Any company or individual can without prior experience or knowledge offer mortgage advice. Consumer protection on miss selling is nonexistent and Banks themselves are able to sell product without any clear transparency upfront, add unnecessary and unrequired linked products and few generate legal and binding offers of lending prior to completion.

Whilst most of the issues facing the Banks currently relate to commercial or semi commercial lending, and whilst there has been a tightening of processes and criteria’s post the boom, as has been seen in many other countries the regulatory focus will probably focus on the requirement to be able to document and evidence what has been done rather than actually ensuring what happens is fair reasonable and of sound risk.

It can be expected that in the medium term mortgage advice will be regulated and some form of qualification required. This in itself is a step in the right direction as long as it is implemented in a sensible manner rather than just being some form of bureaucratic process as is very much the case in the UK.

One can but hope the regulator will look at all the practices implemented by the Banks in terms of lending by providing far more consumer protection, insisting on more transparency upfront, without yet again tying the Banks up to a point where the only safe thing to do is a reject an application in case the regulator questions why you have lent.

In the short term the Banks will be wary of lending until the dust settles so this extra liquidity will definitely not find its way into the credit markets. The money will be used instead to prop up balance sheets and allow Banks to stay solvent as the recession deepens.

International Mortgage Solutions

Bailout good for banks, not for borrowers

IMS - International Mortgage SolutionsIt was announced this week that the final details of the package for Spanish banks will be delayed from the 9th of July to the 20th July.

Any misinterpretation by the public that this rescue package would ensure credit started to flow again in Spain was quickly quashed  by bank leaders like the Chief Executive of Sabadell group who stated the banks who require aid, which is most of them, will find it more difficult to lend rather than the other way round.

BBVA Chief Executive also went to press this week stating that BBVA had no intention of reducing the price of the vast assets they hold to sell them through but would in fact hold on to them until prices increased. For BBVA it could be argued this is an option given their size and overall balance sheet strength but for other lenders it will not be. BBVA will find prices drop further because of what other banks have to do so how long they can hold out without being realistic remains to be seen. Brave words that I doubt he will finally be able to stick by.

On the ground mortgages still remain available for purchasers with average rates now 3% to 3.5% above 12 month Euribor with the Euribor dropping slightly again this month from 1.26% to 1.21% for completions in July.

Average rates for those buying bank owned stock are between 1.5% to 2% but often at the cost of negotiated purchase price.

International Mortgage Solutions

Spanish banks – no hurry to shift distressed assets

BBVA - In no hurry to shift assets
BBVA – In no hurry to shift assets

The boss of Banco Bilbao Vizcaya Argentaria (BBVA) says that the second largest bank in Spain is “in no hurry” to move the 1.5 billion euros in distressed assets, choosing to wait for bids to go up.

BBVA’s Chairman and Chief Executive Francisco Gonzalez made the comments in Taipei as he attended the opening of the banks new office. He also said that he does not envisage any significant improvement in international feeling towards Spain’s banking sector following the approval of 100 billion euros to recapitalise them.

“We are in the process of selling (our distressed assets). Any euros we can get is a profit. We are not in a hurry and we are waiting for bids. Those bids were really low a year ago but are now going up and we are waiting for even better bids,” Gonzalez said, but declined to say how much the bank expected to sell.

BBVA is trying to sell a mix of repossessed real estate and defaulted loans, a similar situation to most other Spanish banks.

Euro zone leaders agreed a deal to inject capital directly into Spanish banks and to buy bonds to support financially strapped countries, and to try and curb a regional debt crisis that could threaten the Euro.

Despite the rescue efforts, Gonzalez said he does not see any improvement in sentiment towards Spanish banks among international investors.

“Now we are in the midst of the turmoil, and my view is that it has probably improved a little bit over the last few days because of what has happened in EU over the weekend, I think people are starting to understand the real scope of the decisions taken at the summit,” he said, adding that although there has been some signs of a positive reaction in the markets, more time was needed.

He also said that the crisis will not stop BBVA’s international expansion.

“The crisis is a big opportunity for BBVA to expand market share. We haven’t changed our expansion plans all over the world. We believe our business model is very consistent and we see a lot of growth in the countries in which we are working.”

Why does the Spanish Stock Exchange Shrink?

This was written back in May but gives some good insights into Spain’s problems so I decided to post it for you.

Guest post by Adrian Espallargas

Spain entered in recession last month for the second time in three years. This country has been economically struggling since the 2008 financial crisis. The harsh austerity policies passed by the conservative government have not tackled the two main economy troubles of the country: The high unemployment rate and the very damaged financial sector. Therefore analysts are not very optimistic about the future of the Spain´s economy. In fact, the IMF expects the Spanish economy to shrink by 1.7% during this year.

Consequently, the Madrid Stock Exchange has continuously fallen since July 2011. Have a look at this graph.

IBEX Graph

However, some European countries economies have grown in the last two years or have recovered somehow after the 2008 financial crisis. For example Germany.

But why does the German economy increase while the Spanish hits the bottom? Let’s have a look at the companies that make up the DAX 30 and the IBEX 35 indexes in Frankfurt and Madrid Stock Exchanges respectively.

This is Germany
Among the 30 most important companies in Germany there are:

  • 10 Chemical, Technological, Medical or Pharmaceutical firms.
  • 4 Automotive Companies.
  • 2 Banks.
  • 2 Insurance Companies.
  • 2 Personal and Home Care manufactures.
  • 1 Steel Company.
  • 1 Cement Producer.

This is Spain
Among the 35 major Spanish companies there are:

  • Banks.
  • Construction and infrastructure corporations.
  • Steel companies.
  • Pharmaceutical.
  • petrochemical.
  • Solar Power company.
  • Wind Power company.

Germany has a large number of firms that manufacture diverse products. Automotive, Chemical, Technological, Medical, and Pharmaceutical industries are big job creators. Those businesses need from very low-skilled level workers to very-highly educated employees. In other words, from assemblers and transporters to scientist. Besides, the large scientific community in Germany assures the country  has very innovative top level firms.

The two main activities by the 35 major companies in Spain are banking services and construction. Precisely, the two industries most affected by the 2008 economic bubble.

Construction suddenly stopped after the bubble. This industry propelled Spain’s economic growth in the 2000s making around 10% of the GDP and employing 9% of the labor force in 2009. Construction is also a huge job creator that pushes other industries such as steel manufacturers. But Spain has over built infrastructures, buildings, and houses. In fact, Spain built more houses than Germany, Italy, and France together during the bubble. There is nothing else to be constructed. Therefore, one of the largest industries has halted its economic activity triggering massive layoffs. Now, unemployment is at pre-housing bubble levels (1994-1996). The jobless rate had decreased but once the bubble exploded, we see that Spaniards are at the same situation as when it started.

Found at

On the other hand, Spain has a crippled financial sector. Banks have accumulated numerous toxic assets from unpaid mortgages. Instead of depreciating the value of those properties to the current market prices, Spanish banks keep reporting in their balance sheets that the value of those assets is the price paid before the economic crisis in order to avoid reporting loses. But those prices are not fixed to the current. Consequently, nobody will invest in real estate keeping those toxic assets in stock having banks full of properties but short of liquidity.

Therefore, banks are not lending money. Despite the fact that the Spanish government bailed-out many of the cajas (savings banks), banks have used that money to pay the debts they had with other institutions instead of injecting money into the economy. Thus, there is no credit for individuals or companies. There is no fuel to start the engine.

Therefore, having the two main industries severely damaged has left the economy stagnant. Unlike Germany, there are no other industries that can carry the economy into a better scenario. The main problem of Spain is Spain itself. Until this country invests in different industries, unemployment will be an endemic disease in this nation.

This article was written by Adrian Espallargas, who has a blog all about the recession in Spain – and can be found on twitter @storyofacrisis

Manage your finances while living in Spain

Guest post by Francis Kramer

Convert your currency
Don’t convert your currency in the airport!

Moving to Spain from the United States might seem like a daunting undertaking — and sometimes the practical and logistical obstacles can seem like the most overwhelming. Something as mundane as opening a bank account can seem like an insurmountable barrier to relocation. Fortunately, handling your finances while living in Spain isn’t so different from managing financial matters in the U.S.

Convert Your Currency

When you are moving from the United States to Spain, you are going to need to convert your currency, of course, in order to make any sort of transaction. You’ll need to pay rent or a mortgage, not to mention buy groceries and entertain yourself — so you’ll need to turn your dollars into euros. When you decide to do this, you are going to find that the best route to take is to work with a foreign exchange officer instead of doing this through an automated teller. The reason is that the officer can exchange larger amounts of money more cheaply and more efficiently. You can save yourself a lot of money through going this route.

Find a Bank

Managing your finances is only possible if you have a bank that you can trust. With that being said, there are two main types of banks that are in Spain. Those that are regional and those that are national. For the best opportunity and the most access, you should go with a national bank. There are two major national banks in Spain that you are going to have the choice of choosing between, these are Banco Bilbao Vizcaya Argentaria (BBVA) and Satander Central Hispano. Either of these banks are going to allow you to have access to your funds throughout all of Spain, and you will find that this can make managing your money even easier.

Open Your Account

Opening your bank account is the first step to take after getting the bank that you want to work with. You will find that if you are making Spain your home, you are going to want to go with a resident account. However, if you are just going to be in Spain on and off throughout the year, then you are going to find that a non-resident account will fit your needs.

Plan for Later

You should set aside a bit before you leave the country should you need to re-establish yourself in the United States. This way, you won’t have to convert your remaining euros back into dollars, which can be a costly process, depending on the current exchange rate. The best method to do this is by setting up a savings account at an American bank. This will allow you to earn interest. You might also consider putting money into a mutual fund, where it will experience higher growth at a higher (albeit still relatively reasonable) level of risk.

Francis Kramer loves to travel, and he is a contributing writer for

Rajoy looking to peers for the ‘formula’

Spanish prime minister Mariano Rajoy
Spanish prime minister Mariano Rajoy

Spanish Prime Minister Mariano Rajoy said he’s talking to his European peers about how to save the country’s struggling banking sector.

The prime minister said he has spoken to other European leaders and colleagues in the European Union to try to find “the formula for the financing of the capitalization of the banking sector”.

He told reporters that he will take the decision that “best defends the interests of Spaniards.”

The comments came just before ratings agency Fitch downgraded the country’s credit rating to ‘BBB’, and ratings and research agency Standard & Poor’s forecast Spanish banks are likely to recognise losses of between 80 and 112 billion euros by the end of 2013 as the country’s double-dip recession forces more borrowers into default.

Pressure is building on Spanish banks to make loan-loss provisions this year for both 2012 and 2013.

Spain is trying to overcome opposition from Germany to allow the euro region’s bailout fund to funnel capital directly to lenders avoiding an official international bailout. The treasury are seeing their access to capital markets reduced as it increasingly depends on domestic banks to buy its bonds.

Yesterday Spain’s 10-year bond yields rose to 6.237, heading back toward the 7% mark that triggered bailouts in Greece, Ireland and Portugal. The treasury met its issuance goal selling 2.07 billion euros of securities, surpassing the target of 2 billion euros.

Spain struggles on as an EU bailout gets closer

Guest post by Jimmy Kane

Will the Euro survive the year?
Will the Euro survive the year?

Spain’s economy is still slowly limping along, getting worse all the time. Concerns about the European country’s financial condition and mounting doubts about Europe’s ability to bail out the country dragged stock markets and the euro sharply lower on Wednesday.

Although Greece may be the epicenter of the debt crisis, Spain has been a growing source of stress and fear over recent weeks. Everyone’s watching Spain’s banking system and this microscope view has magnified last week after Bankia, the country’s fourth largest lender, announced it need 19 billion euro ($23.8 billion) in state aid.

Not surprisingly, investors are biting their nails that Bankia’s woes might translate across the Spanish banking sector, which suffered terribly from the collapse of the construction industry. This economic recession has unemployment at almost 25 percent, which just adds worry fuel to the concern fire. Some speculate Spain will become the fourth euro country to be bailed out after Greece, Ireland and Portugal.

Given that precedent, who’s to say the rest of the European Union wouldn’t follow suit? It’s not like Germany can bail out the entire continent. Naturally, the European Union’s executive office on Wednesday called on the eurozone to create a so-called “banking union” that can centrally oversee and bail out the sector if it needs to be. Lately, it’s a weak link in a very weak chain in the continent’s financial system.

However, bank failures have already overwhelmed the public finances of Ireland, which has forced it to take an international bailout. Will Spain be next? The European Commission recommended that Spain be given an extra year to meet its deficit targets, however likely or not that seems to happen.

The problem with the idea of bailing out a country the size of Spain is that its economy is double the size of the three countries already bailed-out and investors are skeptical whether a rescue operation can be mounted or would even do anything.

The general malaise hit stocks even harder, particularly in Europe, and the selling was aggravated after a VPRC poll for Epikaira magazine in Greece gave Syriza 30 percent of the vote, followed by conservative pro-bailout New Democracy at 26.5 percent.

This year, Spain’s stock market has been performing as terribly as a legless circus monkey on a unicycle. It dropped yet another 1.6 percent Wednesday – and the country’s cost of borrowing has rocketed higher to frightening levels. The euro itself fell another 0.6 percent to $1.2411, a tiny bit up from its nearly two-year low of $1.2405 hit earlier. Economic confidence also continues to slump.

Jimmy Kane is an avid traveler and Spanish real estate hobbyist. When he’s not traveling or studying the Spanish property market, he maintains a telecommunications website out of his hometown of Dallas, Texas.