Unlucky few must wait a year for cut

SPAIN "Mortgage rates at bargain basement prices!" read the jubilant headline in a Spanish newspaper last weekend. The news that the European Central Bank (ECB) lowered interest rates by half a percentage point last week is good news for the millions of Spaniards with mortgages.

According to the Spanish Mortgage Association (AHE), the new rate will mean a monthly reduction of some €2.63 for each €10,000 borrowed over a 20-year period. Since the average mortgage in Spain is €92,000, many households will feel the benefit to the tune of around €24 a month.

But unfortunate Spaniards who took out their mortgages last week just before ECB reached its decision will have to wait for up to 12 months before taking advantage of the new rates.

Mr Javier Ubeda, a spokesman for the Spanish Confederation of Savings Banks (CECA), said the new rates came into effect almost immediately after they were announced by ECB. "But most variable contracts are reviewed annually - some every six months - and so the new rates will not be felt until the contract comes up for renewal," he said.

While the new rates are good news for mortgage holders, it was not such good news for savers whose savings accounts will bring in less income. The average European inflation rate stands at 2.1 per cent, while Spain's inflation of 3.1 per cent, or 1.1 points above the new interest rate, is among the highest in Europe - after Ireland (4.6 per cent), Portugal (3.7 per cent) and Greece (3.3 per cent).

Bank of Spain figures estimate that the level of debt in the average Spanish household is over 80 per cent of disposable income. Even before last week's news from ECB, many saw worrying signs that Spaniards were overstretching themselves.

Financial advisers were warning people that rates were sure to rise over the medium term and they should not be tempted by rates that are the lowest that have been seen in around 50 years.

In an attempt to prevent people falling into a bottomless pit of debt, which they will not be able to pay off, a recent law obliged banks and savings banks to inform their clients about costs and variable interest rates.

They must warn their customers that interest rates could go up as well as down and that they can take out insurance policies to cover them for such eventualities.

At the same time, many financial analysts believe the new rates have been too little and come too late to solve the economic troubles of many European countries.