The Euribor faces the last week of September moving away from 3% and with more and more possibilities of finding itself below the psychological barrier. The monthly average of the index is the reference that banks use to update mortgage loans. Last Friday, it stood at 2.989%, thanks to the fact that the daily figure fell to 2.918%, thus marking new lows.
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.
In less than a week, the ECB and the Fed have cut 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 by the Fed had affected the mortgage index, the truth is that this Friday’s session shows a striking decline, marking the lowest figure so far this year and thus reinforcing expectations that the month of September ends with an average monthly figure below 3%.
Currently, the average of the Euribor with the daily data of this Thursday consolidated at 2.989% provisionallywhich would mean the sixth consecutive month of decline in the index, which will be reflected in the opinions of those with a variable rate mortgage and a figure not seen since November 2022, when the index closed at 2.828%.
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 2.989%, the mortgage payment of homeowners who have a review in September will drop to 683.24 euros, which means that they will pay 74.57 euros less than a year ago and the first we will begin to notice decreases in the monthly payments of mortgagees.
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%.
