Estimated reading time: 5 minutes
Table of contents
- What is the Euribor?
- How is the Euribor calculated?
- History of the Euribor
- Euribor Rates Explained
- Euribor and the Financial Markets
- Impact on the Costa del Sol real estate market
- The Role of Euribor in Mortgage Interest Rates.
- Effects on Real Estate Prices
- End of Euribor
- Conclusion
Welcome to this informative blog about the Euribor and its impact on the real estate market on the beautiful Costa del Sol. In this article, we dive deeper into exactly what the Euribor is and how it plays a role in the real estate sector on Spain’s sunny coastline.
Euribor rates are determined based on a survey submitted to 18 banks
What is the Euribor?
Euribor, or the Euro Interbank Offered Rate, is a daily fixed interest rate at which European banks lend to each other. This rate is set on the basis of average interest rates that banks in the euro zone are willing to pay for short-term loans (up to and including one year). It serves as an important benchmark for many financial products and influences several sectors, including real estate markets. Rates are set daily for 7 loan periods: 1 week and 1, 2, 3, 6, 9 and 12 months.
How is the Euribor calculated?
Euribor rates are determined on a survey basis. This survey is presented to a panel of 18 banks (including ING (NL) and Belfius (Belgium) with the highest trading volumes in the Economic and Monetary Union (EMU). Average interest is then calculated by eliminating the 15% highest and lowest outliers on the actual/360 method (dividing annual interest by 360 days instead of 365).
History of the Euribor
Before delving deeper into the impact on the real estate market, it is interesting to briefly review the history of the Euribor. It was first introduced in 1999 as an alternative to national reference interest rates in the euro area (however, the first Euribor rates came as early as December 30, 1998, just before the introduction of the euro).
Euribor Rates Explained
There are different Euribor rates, as mentioned earlier, ranging from one week to one year. Understanding how these tariffs work is essential to appreciate their broader impact on the economy. The higher or lower the rate, the more impact it has on the cost of loans and the overall financial situation.
Euribor and the Financial Markets
Euribor has a direct impact on financial markets, including the stock market and bonds. Investors keep a close eye on how the Euribor evolves because it can signal changes in market sentiment. It also affects other investments.
Impact on the Costa del Sol real estate market
Now that we have a basic understanding of what the Euribor means, it is time to look at its specific impact on the Costa del Sol real estate market. The interest rate directly affects mortgage rates and thus the accessibility of loans for potential homebuyers.
The Role of Euribor in Mortgage Interest Rates.
Banks often base their mortgage interest rates on the Euribor. When it goes up, mortgage rates are also likely to go up, increasing the cost of borrowing. This could have a restraining effect on the real estate market by making it more difficult for many potential buyers to take out a mortgage.
Effects on Real Estate Prices
Changes in the Euribor can also indirectly affect property prices on the Costa del Sol. Higher interest rates could lead to a decrease in demand for real estate, which could ultimately depress prices. On the other hand, a falling Euribor may stimulate the real estate market by making borrowing more attractive. As real estate on the Costa del Sol remains more of a luxury product, the influence of the Euribor is less pronounced than in other real estate markets.
End of Euribor
Although still often referred to as the Euribor, a switch was made in early 2020 to the ESTER (or €STR/ESTR), which stands for Euro Short Term Rate. A kind of alternative calculated by the European Central Bank. The change came due to decreased activity in interbank lending and because some banks (illegally) agreed among themselves in setting Euribor rates in 2012.
Conclusion
In this article we have explored the Euribor, from its origins and different rates to its impact on the Costa del Sol property market and its eventual switch to the €STR. It is clear that the Euribor has played a crucial role in shaping financial decisions and influencing economic sectors, including the booming real estate market in this beautiful region.
