By Charles Penty
Sept. 1 (Bloomberg) -- Spanish homeowners will face higher mortgage repayments after the benchmark rate for loans last month posted its first annual gain since October 2008.
The benchmark rate for most of the country’s home loans, 12-month Euribor, rose to 1.42 percent in August from 1.33 percent a year earlier, the Bank of Spain said today on its website. That will further stretch the finances of Anabel Ruiz, who already spends two-thirds of her 1,000 euro ($1,271) monthly salary on making payments on a 30-year mortgage that runs until 2036.
“It’s going to make a desperate situation even more critical,” said Ruiz, 43, who works in an accounts department. “It could mean I lose my apartment and we all end up living under a bridge.”
Because almost nine out of every 10 new Spanish mortgages are floating rate, increases in Euribor may start to squeeze demand in an economy struggling to emerge from the deepest recession in 60 years. Higher mortgage payments as loans start to reset come as Spanish households adjust to an increase in sales taxes and a jobless rate above 20 percent.
“It’s another headwind for Spain among many,” said Kenneth Wattret, chief euro-area economist at BNP Paribas. “The turning point for interest rates can present a problem.”
Repossession petitions handled by the Spanish courts jumped to 27,621 in the first quarter, from 23,433 a year earlier and 5,688 in the same period of 2007, according to data from the General Council of the Judicial Power.
Rate Increases
Repayments on a mortgage of 171,000 euros, the average size of a home loan in Madrid according to the government’s statistics institute, would rise by 7 euros a month as a result in the increase in Euribor, assuming a 20-year repayment term and a spread for the loan of 50 basis points over Euribor.
Euribor may rise to 2 percent over the course of next year, said David Cano, a partner at Analistas Financieros Internacionales, a Madrid-based economic consultancy firm in a phone interview. At 2 percent, mortgage repayments would increase by about 50 euros a month, according to a simulation calculator on the website of the Spanish mortgage association.
“In macro-economic terms the impact probably is not going to be significant,” said Cano. “The risk is that it has a psychological effect.”
After reaching a record high of 5.39 percent in July 2008, the Euribor rate plunged to 1.22 percent in March this year.
Construction Boom
Spanish mortgage lending soared during Spain’s construction boom, surging more than fivefold from 1999 to 626 billion euros at the end of March this year, according to central bank data.
As much as 87 percent of new Spanish mortgages are floating-rate, meaning they reset according to increases or declines in benchmark interest rates.
In the U.K., the proportion is 54 percent, according to the European Mortgage Federation. While mortgage loans classed as “dubious” fell to 2.7 percent of total home financing in March, from 2.9 percent in December, that remain seven times higher than levels at the end of 2005, according to data from the Spanish mortgage association.
Higher rates come as government austerity measures and the withdrawal of public works programs threaten to undermine Spain’s economic recovery. The International Monetary Fund predicts a 0.4 percent contraction in the Spanish economy this year, after shrinking 3.6 percent in 2009.
While rates will climb, the increases shouldn’t be too “frightening,” said Raj Badiani, an economist at IHS Global Insight in London.
“You can’t expect Euribor to stay at the current low levels for ever and what really matters now is the rate of ascent,” said Badiani. “The last thing Spain needs now is Euribor rising rapidly over the next year.”
And as an added bonus from the U.S.
And as an added bonus from the U.S.
Auto sales droop
Figures come in worse than expected
Can you imagine that? Cash for Clunkers was a Clunker? Government intervention when done right can help those who call through the cracks, but for the most part they either kick the can or make matters worse. Let's see another round of layoffs in the US car manufacturing industry and watch platinum plummet again.QB
Automakers and analysts expected August auto sales to look bad compared to last August's figures, which were inflated by Cash for Clunkers. But last month was even worse than predicted.
The auto industry turned in its worst August for U.S. sales in 28 years.
While Cash for Clunkers skewed the year-over-year comparison, Jesse Toprak, vice president of industry trends for TrueCar.com, raised concerns that August U.S. auto sales totaled fewer than 1 million vehicles, down from slightly more than 1 million in July, when historically the two months tend to have comparable sales.
"What's actually more worrisome is we're supposed to be on a trajectory up to recovery," he said.
One exception to the dismal sales trend was Chrysler Group, which exceeded expectations with a rise of 7 percent to 99,611 compared to last August, the company said. It's the automaker's fifth straight month of year-over-year sales increases.
General Motors Corp., the biggest U.S. automaker, said sales fell 25 percent to 185,176 from 246,479 last August.
Ford saw sales fall 11 percent to 157,503 from 176,323 a year earlier for its three main brands.
Toyota reported U.S. sales of 148,388 units, down 31 percent from last year. Toyota had benefited tremendously from the government rebate program and reported one of the industry's biggest year-over-year declines.
For August compared with July, sales fell 3 percent at Honda, 7 percent each at Nissan and Subaru, and 8 percent at Kia. All of them reported bigger drops compared with August 2009 because of Clunkers sales. August sales at Hyundai were essentially flat.