Euribor, the index to which most variable mortgages in Spain refer, is this Friday October 11, 2024 at 2.822% in its daily rate, which implies an increase compared to the previous day of 0.031 basis points, to end the week above the 2.8 barrier.
After several days of consecutive declines, with a break down of the 2.8% barrier during which This continued throughout Octoberthe index increased again this Friday, surpassing this barrier and highlighting in the week the notable data of Tuesday, where it increased by 0.086 points.
What is happening with Euribor?
Concretely, the Euribor usually presents daily data that remains stable, with very little movement, so this Tuesday the data surprised with the highest increase since February in its daily rate, a percentage whose cause could be in the data of the American unemployment known recently. and this eliminates the possibility of another double rate cut by the Federal Reservewhich was already taken for granted.
It is true that with the monthly closing of September, variable rate mortgages whose payment was reviewed breathed a sigh of relief, since it was consolidated. the sixth consecutive month of closurewith a figure below 3%, which has not been seen since November 2022. In addition, this closure marked a minimum that has not occurred since December 2022, a joy for mortgage creditors who have been fixed certainly at 2.936%.
After these last few days, the provisional average continues to mark the same level, below 2.8%, it could therefore close again lower at the end of the month, provided that increases like this Friday or that of Tuesday, which meant the largest increase in its daily rate index since last February, a fact which, if this dynamic continues, could break the monthly sequence of decline that occurred during the last half-year.
Precisely, it was last February, when Euribor stopped the sharp declines generated by the exaggerated expectations of central banks in terms of rate cuts. Ultimately, the cuts only arrived in June for the ECB, much later than expected by the markets. It wasn’t until September that the Fed cut interest rates. The Euribor interrupted its decline since February until it resumed its decline in June.
Why does Euribor behave like this?
To put into context, the pronounced drops in the Euribor that have occurred in recent weeks and with the end of September, are driven by expectations of rate cuts by central banks. In fact, the ECB and the Fed lowered rates in September. The European bank first did so with a new rate cut from 3.75% to 3.5%, after that carried out in June, while the last meeting of the Fed concluded with a drop of 50 basis points (the equivalent of two “single” 25 bp drops).
Generally speaking, the Euribor is sensitive to economic data which can influence the movements of the ECB, even if this time the reaction of the index is to be sought across the Atlantic. In the United States, employment figures for September were published last Friday and This was not good for high expectations. which were generated for central banks to cut rates at high speed.
Although the Federal Reserve meeting On November 7, he forecast a further cut of 50 basis pointswith this new panorama, this movement has been called into question. Because? Because financial markets reacted to the aforementioned jobs data by dampening expectations of another double interest rate cut by the Federal Reserve, like the one it made last month. Let’s say that the normality of falling rates returns to the rate horizon in the United States, and this, to a greater or lesser extent, affects the Euribor.
Regarding the ECBwhich influences the mortgage index even more, It seems increasingly clear that he will continue to cut rates. He will do it in a simple way, meeting after meeting, at least for the rest of the year.
Even one of the central bank’s big hawks, a member of the body that decides whether to lower or raise rates, is open to a reduction for the October 17 meeting: “I want to wait for the meeting itself, but of course “I am open to the idea of taking another step forward in terms of interest rates,” German Bundesbank President Joachim Nagel said today on the Table Today podcast in an episode published on Tuesday. “The latest figures are very encouraging: we are clearly getting closer to our 2% target,” he said of euro zone inflation, which fell below the ECB’s target for the first time since 2021.
financial markets it is clearly excluded that the ECB will lower its rates twice during the rest of the year, to leave them at 3% and continue to reduce them at the January meeting, which should give Euribor room to continue falling.
How does this impact my mortgage?
This downward trend experienced by the Euribor directly affects mortgage reviewsboth semi-annual and 12-month, since banks recalculate variable mortgages with the monthly average, up or down compared to data from six or twelve months ago.
To see it with an example, for a real estate loan of 140,000 euros over 30 years (360 months), with a differential of 1% and taking the month of October 2023 as a reference (since most real estate loans are revised at 12 months), when the Euribor closed at 4.16%, The monthly fee was 765.30 euros.
From now on, with the provisional average for October 2024, which amounts to 2.756%, the mortgage payment of owners who will have a revision in September will drop to 617.62 euroswhich means that They will pay 147.68 euros less than a year ago and the first reductions in monthly mortgage payments will begin to be felt.
