There is a pause in the European benchmark rate decline. With only one day left in the month, the index linked to roughly five million mortgages in Spain sits near a monthly average of 3.666%, up from 3.609% in January. This hints at a break from the downward trend that began after a high of 4.16% in October. Still, fixed-rate mortgages that reset annually using February as the reference will see the gentlest uptick since early 2022, while about 30% of loans with semiannual adjustments will enjoy a third consecutive reduction in payments.
As a result, the euribor has fallen noticeably from November to January due to market expectations that the European Central Bank (ECB) would have to move sooner to ease official rates, in line with a weakening euro-zone economy and a faster-than-expected drop in inflation. Yet in recent weeks, the central bank has convinced investors that any money-dulling cycle is more likely to begin in the summer than in the spring. Daily data show the euribor beginning February around 3.5% and finishing near 3.75%.
Movements up and down
Despite the euribor’s rise, annual reset mortgages should still see payments ease slightly. For a 150,000 euro mortgage over 24 years with a February-reference rate plus 1%, the monthly payment would shift from 855 to 866 euros, an 11-euro increase per month and 132 euros per year. For a 300,000 euro loan with the same terms, the jump would be from 1,711 to 1,733 euros monthly, about 22 euros more each month and 264 euros more per year. By contrast, semiannual-reset loans would drop from 901 to 866 euros and from 1,803 to 1,733 euros in the two example mortgages.
In practice, the impact on borrowers will be milder or only slightly relief, but in both cases relative to the heavy household financial strain faced over the past two years. Using the 150,000 euro reference, February 2022 saw payments for annual resets at 563 euros and semiannual resets at 552 euros. Over two years, those payments would rise by 303 and 314 euros per month respectively—roughly 54% and 56% higher.
Moderation
Payments rise when the euribor is higher than its level a year or six months earlier in the reference month, and fall otherwise. The moderation of payment increases, despite February’s slight uptick in the euribor, comes from comparing new euribor levels with February and August 2023 values (3.534% and 4.073%). The year began with the euribor at 3.337%, peaked at 4.16% in October, and eased to about 3.679% in December.
Compared with February last year, the year-over-year gap used for annual resets is now 0.1326 percentage points—the narrowest since January 2022. For semiannual resets, the year-over-year decline relative to last August stands at 0.4064 points. To put it in perspective, the year-on-year differences reached a peak of 3.884 points in March of the previous year.
ECB watch
Even with February’s uptick, major forecasting services expect the euribor to keep easing in the coming months. Bankinter projects it falling to 3.25% by December and to 2.75% by the end of 2025. CaixaBank foresees 3.06% and 2.45%, respectively. Funcas envisions an average of 3.27% in the fourth quarter of 2024. If these predictions hold, annual-reset mortgage payments could start to ease around March or April.
All of this hinges on the ECB’s inflation battle and the actions it chooses for its key rates, with the euribor trying to anticipate those moves. A few weeks ago, the ECB president indicated a potential first rate cut in the summer, later than the market expected, and with caveats: the move is not a certainty but rather a probable scenario that will depend on inflation remaining on a downward path and on wage growth, corporate margins, energy prices, and global supply chains.