IRPH & Euribor
The interest reference rates that charge the mortgages in Spain have been the IRPH & Euribor.
The former is a reference linked to the interest rate set by the European financial authority; the latter is a rate created by the Spanish financial institutions (initially the local Cajas or saving banks) and is an average of the mortgages authorised by the Spanish entities.
Historically, the Spanish banks offered the IRPH as the interest rate in the mortgages, on the basis that it was “more stable”, as it didn´t depend on a foreign financial authority, so in the long term the borrower would know more precisely how much he would have to pay every month.
In the mid 2000s, however, the financial crisis and the drastic, and much publicised, fall of the euribor made the mortgagees look closer to their mortgage conditions. Many of these mortgagees found that their monthly payments were not lowering, even if the euribor went down to levels of 1% (it is as at October 1st 0.33%; with the Bank of Europe official interest rate set at 0.15%). Many borrowers found out that their mortgages had the IRPH as reference rate, even if they didn´t know it.
The complaints to the banks were numerous and the Spanish financial authority ruled that, from November 1st all mortgagees with the IRPH as reference could change it to euribor if that was previewed in the mortgage agreement.
For those without a clause setting the euribor as a substitute reference, the legislator created a new IRPH, called now “IRPH entities”. This substitution has been much criticised, as it didn´t change too much of the IRPH beyond the name: the rate is still is the average of mortgage given by the Spanish banks every three months.
As such, it is far higher than the euribor – approximately 2%, making the difference in the actual payments in roughly € 700 per year (for an average mortgage of €100,000 with a term of 20 years).
The previous situation made the mortgagees with the new IRPH entities in their mortgages request it to be changed for the euribor. The banks initially were quite reluctant to change the rate voluntarily, so the first cases start to get to the Courts. The Judges found the IRPH entities abusive and are ruling for it to be substituted for the euribor. The bases for this have been clearly stated in the rulings already issued:
The IRPH is always higher than the euribor.
The mortgagees were not offered the euribor when agreeing the mortgages (and the banks must prove that they did actually offer it to the borrowers, if they claim they did).
The rules of the IRPH setting are quite obscure and not understandable except for finance specialists.
One of the parties of the mortgage agreement – the bank – can affect and provoke oscillations in the reference rate.