October will be the sixth consecutive month of reductions in the maturities of variable rate mortgage loans updated annually (a large part of those contracted in our country). Precisely, the drop in Euribor represents a saving of 100 euros per month for an average loan of 150,000 euros over 25 years with a commission calculated according to the value of the reference index increased by a differential of one percentage point.
In September, Euribor fell on average to 2.94%, a minimum not seen since November 2022 after the second interest rate cut by the European Central Bank (ECB). And, as the graph of this information shows, the daily evolution of the mortgage index continues to decrease, given the expectations that the monetary institution chaired by Christine Lagarde will continue to lower the official “price” of money in the euro zone in the coming months. month .
Since the August figure (3.166%), the drop is a few tenths. But since September 2023, when Euribor closed on average at 4.149%, the decline has been very pronounced, by more than a percentage point at a time. The drop is also significant for those who review their home loan every six months. In March this year, Euribor remained at 3.718%.
“If the exam is biannual, the savings will be a little less [que si es anual]because the Euribor has not fallen much in the last six months, but it will continue to be considerable. For the example taken initially [préstamos de 150.000 euros a 25 años]monthly payments will be reduced from 852 euros to 787 euros on average, approximately. The mortgaged person will therefore pay around 65 euros less per month and around 394 euros less per semester”, explain the experts of the HelpMyCash comparator.
In an interview with elDiario.es published this Sunday, the Minister of Economy, Carlos Corpo, emphasized that “on the basis of a gradual moderation of inflation [en España se moderó al 1,5% en septiembre]all analysts expect rate cuts to continue. The ECB started even before the Federal Reserve itself and we must continue to move forward taking into account our economic activity and the fact that Germany and France [cuyo crecimiento económico está estancado] “They need that boost.”
In June, the monetary institution began the beginning of the end of the cycle of monetary austerity. Since then, he has reduced the official “price” of the currency twice, from 4% to 3.5%.
On the one hand, the drop in Euribor is a relief for many families mortgaged at variable rates (three out of four in our country). At the same time, amid rising prices, many experts warn that cheaper loans will push property prices even higher. The great paradox is that the monetary austerity (with rate increases and higher financing costs) that the ECB began to apply since July 2022 has not led to a fall in prices on the real estate market.
The ECB roadmap
With further rate cuts in the coming months, the ECB Governing Council expects headline inflation to stabilize at the theoretical target of 2% within a year and is confident that the zone euro will avoid recession. In this “central scenario”, the main body that decides the monetary policy of the “common currency” countries is divided in two depending on the main risks that currently exist. Part of the Governing Council is concerned about the weakness of economic growth, particularly in Germany. The other, the more orthodox, is due to the “rigidity” of inflation in services.
The ECB Governing Council is made up of the central bank governors of each eurozone partner and the executive committee of the European institution, chaired by Christine Lagarde and of which Luis de Guindos is vice-president. On September 12, the new governor of the Bank of Spain, José Luis Escriva, made his debut at the ordinary meeting of this body, which is held every six weeks. The next ECB monetary policy meeting will take place on October 17 and the next on December 12.
“Spain is one of the countries where the rise in rates weighs the most. Households pay higher interest due to the prevalence of variable rate mortgages and have a lower interest rate. [de los depósitos]. In Germany and France, it is households who benefit from the increase,” explained Ángel Talavera, chief European economist at Oxford Economic, last week.
On the other hand, the overall weakness of the German and French economies currently poses the biggest threat to part of the ECB Governing Council. The risk is that the aggressiveness of rate hikes has gone too far and that inflation will fall below 2% within a year or more. In this scenario, the main fear would be deflation, a “monster” which could be even more impoverishing than inflation because it is linked to a recession and job destruction.
In short, the ECB’s strategy of harming the economy by raising interest rates to combat rising prices has always assumed this possibility. In fact, another part of the board of governors of the monetary institution remains more aware of the resistance to a moderation of inflation in services.
“Services inflation has remained stubbornly high in recent months. However, a gradual decline is still expected, with a decline in wage growth and other costs, while the lagged impact of the previous monetary policy tightening continues to pass through to consumer prices,” details the latest projections report from the ECB itself.
According to the institution’s analysis, this forecast is called into question for two reasons. The first, due to the “lack of labor” throughout the euro zone in the tertiary sector, which could mean “further salary increases”. The second, due to the shift in family consumption trends towards leisure after the shock of the pandemic. A transformation that makes demand more resilient despite the damage caused by the rising cost of mortgages and loans in general.
Currently, with official interest rates at 3.5%, financing conditions remain “restrictive”, as the ECB itself describes them, meaning that they harm purchasing capacity families and business investment.
