Mortgage holders are approaching a potential turning point as the Euribor trend shifts. The 12 month Euribor, the benchmark for most variable-rate mortgages in Spain, slipped on Wednesday to a June 15 low of 3.983% on a daily basis, down from 4.015% on Tuesday. The 4% drop marked the second decrease in November. It stood at 3.991% after Friday the 17th.
The November monthly average sits at 4.029%, the lowest since June and the second monthly decline in 2023. It is well below October’s 4.16% and September’s 4.149%. After months of increases driven by the European Central Bank rate hikes aimed at curbing inflation, the Euribor closed at 4.007% in June.
The drop in the eurozone Consumer Price Index CPI to 2.9% in October, one point below the ECB target, led markets to anticipate that the central bank led by Christine Lagarde would pause further rate increases. This pause reduced Euribor levels as well, catching European stock markets off guard, with Ibex 35 briefly touching 10,000 points, a level not seen since February 2020.
Spain mirrored this trend on Wednesday, with inflation at 3.2% in November, three tenths lower than October, according to preliminary CPI data from the National Statistics Institute INE.
Mortgages may still rise
The Euribor decline does not automatically translate into lower mortgage payments. Mortgages are usually reviewed annually or semi annually based on the most recent Euribor value at the time of signing. Even with the positive news, variable-rate quotas could still rise in the coming weeks, though updated loans may offer cheaper prices next year, according to the financial comparison site HelpMyCash.
In November, Euribor hovered around 4.03%, higher than six months ago at 3.862% and notably above last year’s 2.828%. As reviews approach in the coming weeks, some variable-rate loans will adjust upward, increasing monthly payments.
When will variable mortgages go down
Experts are watching closely. Mortgage analyst Miquel Riera notes that Euribor surpassed 4% in June 2023. If the current trend persists, borrowers may see semiannual reviews in December or January next year, potentially followed by declines. Those with annual updates from the second quarter of 2024 might see reductions as early as April, he explains.
Banks and real estate specialists anticipate Euribor will ease in step with eurozone inflation. If price growth slows and CPI nears the 2% target, the ECB may refrain from further rate hikes, which stand at 4.5%. The futures market suggests a potential 0.75 percentage point cut in the second half of next year, aligning with expectations from the U.S. Federal Reserve.
Mortgage approvals and lending activity
Mortgage originations for housing fell sharply, down 29.6% year over year in September, totaling 31,054 loans. This marks the largest drop since January 2021 and the seventh straight double-digit decline, driven by higher interest rates on these loans.
Recent data from INE shows that the average interest charged on new home loans rose to 3.26%, the highest since January 2016. This marks a difference of over one percentage point from the year before. In September, 56.2% of new home loans were fixed rate, the lowest share since March 2021, while 43.8% were fixed and 56.2% were variable or mixed in nature.
For readers in North America, these developments underscore parallel dynamics in mortgage markets where benchmark rates influence loan costs and monthly payments. Investors and homeowners looking at the European trend may watch how inflation trajectories and central bank actions shape future rate paths, potentially impacting cross-border real estate financing and investment strategies. Attribution: INE data corroborates the inflation and mortgage metrics cited in this summary.