New rise in Euribor tracks ECB moves and market outlook
The Euribor benchmark for variable rate mortgages stood at 4.145% in September 2023, as data for the month failed to arrive on time. This level edged up from August 4.073% and was almost identical to July’s 4.149%. After a brief dip last month, it appears that the fall was only a temporary illusion.
The European Central Bank raised official rates to 4.5% on September 14, a move that leaves Euribor with little room to retreat. Market observers note that Euribor tends to follow the ECB’s policy path, with Simone Colombelli, Mortgage Director at the mortgage comparator iAhorro, commenting that the rate gap has widened by about 35 basis points due to the rate surge.
In the weeks ahead, Colombelli predicts a gradual climb toward a monthly average around 4.2%. Once that 4.2% threshold is surpassed, the next hurdle toward 4.5% will come into view relatively quickly. A spokesperson from iAhorro also suggests that the most likely scenario is ending the year with Euribor near 4.5% if the ECB does not alter rates again in the next quarter.
Installments of variable housing loans keep rising
As Euribor continues its gradual ascent, mortgage holders with high credit scores feel the impact, especially when their loans are pegged to Euribor. Each revision can nudge monthly payments higher as rates shift, altering household budgets and the total cost of a loan over the term.
Consider a variable mortgage of 150,000 euros with a 30-year amortization and an interest rate of 0.99% above Euribor. With annual adjustments every September, last year’s total payment rise exceeded 2,300 euros. This year, an estimated additional 1,940.36 euros will be reflected in the annual quota. In concrete terms, the monthly payment could jump from 650.59 euros to 812.55 euros, a rise of about 161.70 euros per month.
These cost pressures are prompting many new borrowers to rethink the appeal of variable-rate options. It is not only these products that have become costlier, but the entire mortgage market is entering a strange phase: sales are down, yet demand for home ownership persists and housing prices continue to edge higher in many areas.
In response to this situation, iAhorro’s Mortgage manager explains that some regions could see housing prices ease in the coming quarter. If demand continues to fall, prices are unlikely to keep rising. In major cities like Madrid and Barcelona, however, a stabilisation rather than a decline in prices could emerge. The manager notes that a full recovery of the real estate and mortgage markets requires both a decline in house prices and a reduction in mortgage rates over the medium term; the current configuration cannot be sustained for much longer.
Fixed and blended mortgages remain attractive options
Bank offers to existing mortgage holders still include competitively priced products. iAhorro highlights that fixed-rate mortgages around 2.6% are available, while blended mortgages offer initial rates closer to 2% for the first five years. These options provide relief in a rising-rate environment and can help households manage future costs more predictably.
Industry commentary also notes that the final quarter of the year often presents favorable mortgage opportunities, as financial institutions intensify marketing efforts to meet annual targets. To secure favorable terms, it is essential to compare a wide range of offers and identify the lender whose product best aligns with an individual profile. In summary, now more than ever, buyers should carefully evaluate all options rather than relying on a single rate or product to guide decisions.