Euribor, the index to which most variable rate mortgages are referenced, This Wednesday, September 11, 2024, it stands at 2.96% in its daily ratemeaning it continues its downward trend, after falling below 3% on Monday. The index is recording sharp declines due to high expectations of sharp rate cuts by central banks. This Thursday, September 12, the ECB is meeting with the prospect of a further rate cut.
The end of August already boded well for the index, closing at 3.166% and recording the biggest monthly decline since 2009since July, closed at 3.526%, a decrease of 0.36 percentage points. Thus, the month of September began with figures that anticipate interest rate cuts by the Fed and the ECB, at their next meetings (September 12 for the ECB and September 18 for the Fed). For tomorrow and with a high probability, it is expected that the ECB lowers its rates from the current 3.75% to 3.5%.
Concretely, the market is waiting for the ECB to set the reference rate, the deposit rate, from 3.75% currently to 3% in December. The Federal Reserve is expected to make five cuts in the three meetings remaining this year. In the United States, market forecasts call for rates to drop from 5.5% to 4.25.
This Tuesday’s data, at 2.96% in daily rate, follows the dynamics of the previous days, with a slight decrease of 0.01 percentage points regarding Tuesday. In this way, the figure is consolidated below 3%, a value also anticipated by the Euribor futures contracts, one of the indicators most used by analysts, for the end of the year.
How is Euribor calculated?
The Euribor is called the European InterBank Offered Rate and is calculated by a panel of European banks that report daily at what rate interbank loans are granted. Since 2020, the calculations have been carried out in a hybrid manner. Panel data are included, but also the market’s own estimates, in order to reduce volatility and the risks of manipulation, to which these indices were subjected at the beginning of the century.
The panel is composed of 18 European banksincluding Santander, BBVA, Barclays, Deutsche Bank and Unicredit.
Every working day at eleven o’clock in the morning, the average interest rate at which financial institutions lend capital to each other is published. one week, one month, three months, six months and 12 months.
How does this impact my mortgage?
This downward trend that the Euribor is experiencing directly affects mortgage revisionsboth half-yearly and 12-monthly, as banks recalculate variable mortgages with the monthly average, up or down from data from six or twelve months ago.
To see it with an example, for a mortgage of 140,000 euros over 30 years (360 months), with a differential of 1% and taking the month of September 2023 as a reference (since most mortgages are revised at 12 months), when the Euribor closed at 4.149%, The monthly fee was 764.35 euros.
Now, with the provisional average for September 2024 currently standing at 3.045%, homeowners’ mortgage payments which have a revision in September will fall to 639.64 euros, which means that they will pay 124.71 euros less than a year ago and the first reductions in mortgage payments will begin to be felt.
