Euribor rate set to rise to cool housing boom

12 January 2006

MADRID —  Spaniards desperate to get on the property ladder have now racked up EUR 700 billion in outstanding mortgage payments.

It is the first time the figure has got so high, according to a report by the Spanish Mortgage Association (AHE).

In October last year, mortgages reached EUR 705.3 bn, rising 25 percent or EUR 114.6 bn from the month before.

But the European Central Bank(ECB) is expected to raise interest rates later this year in an effort to cool the housing boom.

The ECB recently raised rates from 2 percent to 2.25 percent, the first time it has done this in five years.

 The AHE said it expected a slow down in mortgage lending this year with the predicted interest rate hikes on the horizon.

The one-year Euribor rate – key to mortgages in Spain – is expected to rise to 3.8 percent by the end of 2006. It currently stands at 2.8 percent.

This means people in Spain will have to use eight percent more of their income to pay-off their mortgages on average.

So on the average mortgage payments, this will mean a rise of between EUR 10- 60 per month.

The slowdown in the mortgage lending is not expected to be dramatic, says the report.

[Copyright EFE with Expatica]

Subject: Spanish news