Good news for borrowers: the Euribor appears set to close August with one of its most notable declines since its inception in 1999. With the final daily reading for the month still to be published this Friday, the index that affects roughly three million mortgages in Spain sits, on average, at 3.17% for August. That is 0.903 percentage points below the level of August last year. If confirmed, this would mark the largest drop since March 2013.
Mortgage products that revise annually, and that use the August figure as their reference—typically updating payments in October—will register the biggest decrease in more than a decade. Mortgages with semiannual revisions will experience the second reduction in payments in a row, following increases in May and June that interrupted a prior streak of five monthly declines from December to April.
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A practical example: for a €150,000 loan over 24 years with Euribor plus a 1% spread, using August’s reference, the monthly payment would drop from €901 to €825, saving €76 per month and €912 per year. For a €300,000 loan under the same terms, the payment would fall from €1,803 to €1,650, a monthly saving of €153 and annual saving of €1,836. For semiannual revisions, the reduction would run from €871 and €1,742 to the cited €825 and €1,650 respectively.
Borrowers are nonetheless feeling relief against the backdrop of broader household finances that have faced substantial stress over the past two and a half years due to an unprecedented tightening of monetary policy as the European Central Bank sought to curb inflation. The €150,000 reference loan had its payments revised to €552 monthly in August 2021 (when prices were spiking and central bank rates were near 0%), and three years later, despite the latest drop, payments remain €273 higher than that pre-crisis level. In other words, households are still paying about 49% more than they did before the inflation surge.
Pending ECB decisions
Nearly 63% of active mortgages in Spain are set with a variable rate, while the rest are fixed since origination. Among variable-rate loans, around 62% adjust once a year and 30% semiannually, with more than 90% tied to Euribor, the average rate banks charge each other. Payments decrease when the reference rate is lower than six or twelve months prior, respectively. This trend has continued in recent months and is expected to persist if inflation remains stable and the ECB continues to loosen monetary policy.
The relief for households aligns with the European Central Bank’s easing of key rates last June and growing market expectations for further cuts, the first anticipated as early as its September meeting. The Bank of Spain estimated last July that about 26% of outstanding mortgages could see costs fall between 0.5 and 0.8 percentage points between March and December 2024 due to these cuts. A further 7.5% would drop between 0.25 and 0.5 points, about 28.5% would fall by less than 0.25 points or would have already refinanced earlier in the year, and the rest are fixed-rate loans.