Euribor, the index to which most variable rate mortgages are referenced, is located here Tuesday, September 24, 2024 at 2.858% in its daily ratewhich means that the mortgage index marks a new low since December 2023, falling by 0.044 points and breaking the 2.9% barrier that it had maintained in recent days.
Since the beginning of September, the mortgage index has shown a downward dynamic that has led to daily data below 3%, so we can already sense a closing of the month below this percentage, which We haven’t seen him since November 2022, all influenced by high expectations that central banks will continue their steep rate cuts.
Concretely, in the last week before the end of September, the index moves further away from 3%, with a growing possibility of ending below this psychological barrier. In fact, last Friday it stood at 2.989%, while the daily data of Monday and Tuesday, with two more pronounced declines, make the average of the month of September is provisionally positioned at 2.976%.
Furthermore, in less than a week, the ECB and the Fed have lowered their rates. The European bank did so first. Lagarde, the president of the organization, announced a new cut to bring rates from 3.75% to 3.5%, after the one made in June. Second, the last Fed meeting ended on Wednesday this week with a 50 basis point cut (the equivalent of two “simple” 25 basis point cuts).
Although at first it did not seem that this decision of the Fed had affected the mortgage index, the truth is that Tuesday’s session shows a second striking decline after Monday’s data, marking the lowest figure so far this year.
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 757.81 euros.
Now, with the provisional average for September 2024, which currently stands at 2.976%, the mortgage payment of owners who will have a review in September will drop to 634.37 euros, which means they will pay 123.44 euros less than a year ago and the first reductions in mortgage payments will begin to be felt.
How low will the Euribor fall?
The problem is that at present, the Euribor is too high for analysts who follow the financial markets and the financial markets themselves. The index is already below the forecasts of most analysis houses that had been made before the summer. For experts, the Euribor would end 2024 at 3%. But the speed with which the reductions are being made suggests that the mortgage reference will remain below this level. Funcasone of the most prestigious think tanks in the country, is preparing a panel of experts that includes the country’s economic forecasts, and by extension some financial variables such as the Euribor, and places it at 2.83%.
The movements of the Euribor will depend on the upcoming decisions of the ECB. The index and the reference rates always go hand in hand. There is currently a dislocation due to the change in the interest rate cycle and the Euribor works more because of the expectations of the central bank. And it is below the outlook updated by the financial markets. December Euribor Futures Contractsthat investors use to hedge their positions against interest rate fluctuations, are counting on a year-end close of 3%. And the OIS (Overnight Indexed Swap) model, which uses investors’ financial swaps, does not believe that the ECB will go much further with the cuts this year and is predicting only one cut in December, so rates would remain at 3.25%.
The big question is what will happen by 2025. “Interest rate expectations implicit in money market prices predict that the ECB will cut the reference rate by 125 basis points until December 2025 and that the 12-month Euribor could reach slightly below 2.5%,” projected Caixa Bank Research. In this line, December 2025 futures discount Euribor by 2%.
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.
