Euribor, the index to which most variable mortgages in Spain refer, is this Monday October 14, 2024 at 2.799% in its daily rate, which implies a drop compared to the day before, below the 2.8% barrier that the index exceeded last week, after several days of consecutive increases.
In fact, there have been several consecutive days of falling Euribor, ending last week, when there was a unusual rebound of 0.086 basis points in the daily ratethreatening to break the good streak and the barrier of 2.8%, which was finally exceeded with Friday’s data, at 2.822%.
However, this Monday, in view of the meeting of the European Central Bank (ECB) and the possible rate cut of an additional 0.25 point, the Euribor falls again by 0.023 point, already leaving the average for the month of October at a provisional value of 2.76%. If this continues, this data would represent the seventh consecutive month of monthly decline in the mortgage index, with a data that has not been repeated since November 2022.
What is happening with Euribor?
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 basis point cuts).
We now find ourselves in a new vital week for the future of the Euribor in the medium and long term, after the small increases it has experienced in recent days. The reason is the ECB meeting next Thursday, October 17, as the index has a strong correlation with the central bank’s official rates. Specifically, with deposit rates currently at 3.5%. And it is difficult for Euribor to continue to fall if the ECB’s official rates do not fall.
At present, the distance between the two benchmarks is explained by the fact that the downward cycle has practically just started and the high expectations for continued cuts by the ECB. There is no doubt he will cut rates by 25 basis points on Thursday.given the economic deterioration of the euro zone. Furthermore, a strong consensus is emerging among analysts and markets that the ECB will make a further cut in December and maintain its rates at 3%. This whole scenario is very positive for the Euribor to continue to fall, but the key will be in the speech of Lagarde, the president of the bank, and if he leaves clues for the beginning of 2025.
The markets, for the moment, They expect Euribor to hit its lowest level at the end of next year. Three-month futures, the most followed by experts, suggest 2025 will close above 2% and financial interest rate swaps suggest a similar level for the deposit rate at the December meeting. This does not mean that the mortgage index will end next year at this figure, both indicators will evolve with Lagarde’s speech and with the next economic data and could change. But they constitute a reliable thermometer to clarify the question of whether the falls in the Euribor will persist.
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 2.76%, 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.
