Wednesday, April 15, 2009

The great Euribor vs IRPH confusion

I keep getting clients contact me who are seeing the ECB rate dropping through the floor, and yet the rate which they are paying for their mortgage in Spain is not falling half as fast. Most of these people took their mortgages out in the good old days when the rates were about 3.5% and nobody cared what the basis was as long as the rate was good. Now many are discovering that they are not on the Euribor - which is the wholesale or inter-bank rate, but rather they are on the IRPH rate.
Of course, these rates were historically similar, so it didn't really matter. But now, the Euribor is reflective of the whole euro-zone, whereas IRPH is reflective only of happenings in Spain. The IRPH is an average of the mortgage rates charged by banks or caja's in Spain - there is an IRPH cajas, and an IRPH bancos, just to confuse things.
Anyway, as Spanish banks try to shore up their balance sheets, those that are lending or refinancing for their customers, are starting to charge much higher margins on their mortgage products, so now 1.5% is much more common than the standard 1% in the past. The upshot of this is that base rates may be dropping but in margin terms the banks are making loans more expensive, so the average for the IRPH rates are not falling as fast.
This effect could of course last for years, and when rates start to go up again, people with higher margin deals will find themselves struggling again. As Spain is now being identified as being in more serious mess than other countries, it seems likely that their banks will continue to push margins as the problems of the economy and unemployment grip.
Best solution, get your mortgage away from IRPH and onto the Euribor. Send us an enquiry and we'll see how we can help. Thanks for reading.

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