Euribor, the index to which most variable rate mortgages are referenced, This Monday, September 16, 2024, it stands at 2.975% in its daily ratewhich means that after seven consecutive days of declines, the mortgage index is rebounding, without however crossing the 3% mark where it has been for the last few days.
Since then, the index has seen sharp declines due to high expectations that central banks would make significant rate cuts. In fact, last Thursday, the ECB meeting made a further rate cut of 25 basis points. This is the second rate cut so far this year. The previous one was in June and now another cut has been executed that reduces the deposit rate from 3.75 to 3.5%.
The data from this Friday, in the 2.975% In daily rates, this represents a rebound compared to previous days, with a slight increase of 0.027 percentage points compared to Friday’s daily data. In any case, the figure of less than 3% continues to consolidate, a value that is also anticipated by the Euribor futures, one of the indicators most used by analysts, for the end of the year.
What happened?
Friday and Monday’s rally ends a seven-day losing streak and comes as the ECB has not been as aggressive as expected. The bank did cut rates, but it gave no indication of what it will do at upcoming meetings. The ECB president solved the problem by asking: “What is it going to be, is it going to be?” and This ambiguity stopped the fall of the Euribor.
The index keeps tracking official ECB rates, including the deposit rate, but sometimes, as is currently happening, anticipates future movements of the bank and lets itself be carried away by pressures from the financial markets.
In addition to today’s decline, the market is anticipating Two new cuts from the ECB to leave the deposit rate at 3% in December, but experts do not see this possibility as clear. And it is precisely the ECB’s lack of clarity in this regard that justifies the sanction imposed today.
Since the end of August, the Euribor had already started to integrate the new declines. The index is closed at 3.166% and recording the largest monthly decline since 2009since July, closed at 3.526%, a decrease of 0.36 percentage points. Thus, September began on a similar note, with hopes that the reductions will continue.
Key week for Euribor
The famous index has a key week ahead. After a strong rally lower awaiting the ECB, it is now time to keep an eye on the Federal Reserve. The index has been somewhat disappointed by the ECB’s lack of willingness to continue with cuts. And while the main reference for Euribor is the ECB, it is also influenced by other central banks and their impact on financial markets.
The US Federal Reserve meets on Wednesday. It has not yet started its rate-cutting cycle, but it is expected to kick it off in a big way with a double cut, or, as the US press has pointed out, a giant cut. Market bets have soared that the cut would be significant, 50 basis points.. This prospect will move the market and would almost certainly push the Euribor lower. If the Fed follows the expected scenario, the index may continue to take a break from its declines.
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, which currently stands at 3.011%, homeowners’ mortgage repayments who have an exam in September will fall to 636.61, which means that They will pay 127.74 euros less than a year ago and the first reductions in mortgage payments will begin to be felt.
