The twelve-month Euribor, the reference index for most variable-rate mortgages sold in Spain, rose on Wednesday to 3.119% (+0.024), breaking its three-day decline streak and reaching its lowest level of the year. The August average stands at 3.173% and the projected mean is 3.168%.
Despite this rise, borrowers can be optimistic because the mortgage index is on track for its largest monthly drop since 2009, sliding from 3.526% in July to an expected 3.17% in August and bringing annual savings of up to 900 euros for some cases. If the month ends like this, the Euribor would be at its lowest since December 2022 when it finished at 3.018%, marking the fifth month in a row of declines.
The retreat follows last week’s Federal Reserve confirmation that rates will be lowered in September, a move that clears a path for the European Central Bank to continue along a similar trajectory set by the U.S. central bank.
In August 2023, the Euribor closed at 4.073. The drop in the Euribor translates into a meaningful reduction in mortgage payments for those with annual reviews at the end of August. For example, a typical variable mortgage of 150,000 euros over 25 years, with an Euribor plus 1% interest, would see payments fall by about 77 euros per month under an annual review (roughly 930 euros less per year) and around 42 euros per month under a semiannual review (nearly 255 euros less per half-year). Year over year, if August ends with these figures, it would mark the largest decline since March 2013, during the final stages of Spain’s economic and property downturn that began in 2008.
“This new trend of Euribor contraction brings us closer to the BCE target curve of 2% to 3%, following the sharp rise we witnessed in the last two years, moving from negative rates to over 4%. These are welcome developments for borrowers beginning to feel relief after the substantial increases seen in prior revisions, especially in 2023,” explains Patricia Suárez, president of Asufin.
How Euribor works and its impact on mortgages
Among other uses, the Euribor serves as a reference index for many banks to set the interest on variable-rate mortgages in Europe, a pattern more common in Spain. In practical terms, mortgage interest fluctuates with this rate: when Euribor rises, payments go up; when it falls, payments drop.
The Euribor’s movements reflect broader financial market tensions. A higher Euribor means banks charge more for borrowing from other financial institutions, and lenders in turn raise mortgage rates for consumers.
The Euribor is linked to the evolution of interest rates set by the ECB and market expectations about future moves by the central bank led by Christine Lagarde. The ECB’s mandate is to maintain inflation near 2% over the medium term.
What to expect for Euribor in 2024
The institution reduced the policy rate by 25 basis points in June, lowering the refinancing rate to 4.25% from 4.50%. The ECB followed its plan and cut rates for the first time since 2019. Two weeks ago the ECB met again but held rates steady while awaiting additional easing in the autumn.
“If the ECB lowers rates several times in the coming months, HelpMyCash projects the Euribor could finish the year near 3% and may even dip below that level. If the ECB takes a more cautious approach with fewer rate cuts than the market anticipates, the index could end 2024 around 3.3%,” notes Miquel Riera, a mortgage analyst at HelpMyCash.