The fall in Euribor offers temporary relief for mortgage holders.

In fact, the indicator most used to calculate variable-rate mortgages marked its lowest daily rate since December 2022 this Friday, suggesting more fee cuts are on the way in future reviews.

According to market data, Euribor fell to 3.102%, the lowest since 3.057% on December 19, 2022. One week to the end of August, the monthly average of Euribor is around 3.18%, down from 3.526% in July.

Downward trend

This is not a one-off record, as the downward trend looks set to continue and all indications are that the de-escalation will be confirmed later in the year. The indicator could end August with a fifth consecutive monthly decline. But the good news does not end there, as industry organisations and experts predict a half-point decline later this year, when quotas are usually reviewed, to around 3.2%. The average for this year is 3.6%.

Euribor is the most widely used benchmark index in Spain and most European countries for mortgages. Its calculation is based on the interest rates at which 18 of the most influential banks in the eurozone are willing to lend to each other.

In addition to the strategies of the European Central Bank (ECB) and banking institutions, as well as macroeconomic data, what is important for people with a mortgage is the hard and fast transfer of savings that this projected annual reduction in the Euribor rate will mean for their pockets. It is difficult to make a forecast, but according to forecasts, mortgage payments could become cheaper for families who will have to renegotiate their mortgages in the coming months. Calculations vary from an average of 400 euros per year, which Economy Minister Carlos Corpo estimated a few weeks ago, to 1,000 euros in annual savings, as some financial institutions indicate, for a mortgage of 150,000 euros over 25 years, taking into account the Euribor rate for this month and comparing it with the rate of last August. Some analyses even predict savings of more than a thousand euros per year.

Moderate inflation

Why is this decline happening? On the one hand, interest rates are falling both in Europe and soon in the United States, both for those with a mortgage and for those with a loan from their bank. On the other hand, rampant inflation has been falling for two years, and its slowdown is forcing central banks to set more moderate and lower interest rates, making life easier for those who bear the fiscal burden. In addition, the labor market is giving good data and showing good muscle, despite showing signs of slowing in Europe in recent months.

Likewise, it is necessary to highlight the strength that the economy is demonstrating despite the uncertainty generated by military conflicts such as Russia’s conflict against Ukraine or Israel’s genocide in Gaza, as well as the threat of Donald Trump’s return to the presidency of the United States.

All this is causing a “boom in the mortgage market and a commercial battle between financial institutions,” according to Tecnotramit, a firm that provides services to financial institutions and real estate companies in Spain and Portugal. Carles Solé, the company’s director, believes that after a sluggish 2023, financed real estate transactions have rebounded in the first half of this year, already reaching the negative Euribor levels of 2021 and 2022. “It looks like this trend will continue until the end of this year,” says Solé.

Likewise, Massimo Cermelli, professor and doctor of economics and business ethics at Deusto Business School, told Onda Vasca that Euribor “is falling more than expected, and I think that between now and December it will be closer to 3% than 3.5%.

At the end of June last year, the ECB approved a 0.25 percentage point cut in its benchmark interest rate and left the door more or less open for more cuts, all in an effort to confirm that the eurozone was in the process of disinflation. “I cannot confirm that a phase-out of rate hikes is underway. The probability of that is high, but it will depend on the data. And what is very uncertain is the speed at which we will travel and the time it will take,” warned its president Christine Lagarde. Base rates thus fell after monetary authorities raised them to combat high inflation at a pace and scale unprecedented since their inception in 1999: 4.5 percentage points in 10 consecutive meetings between July 2022 and September last year.

Interest rates

Currently, the European Central Bank’s interest rates are at 4.25%, while the preliminary average Euribor rate in August is around 3.2%. “This significant gap suggests that Euribor is already anticipating future interest rate cuts, and therefore we may see a situation similar to what we saw in December 2023,” says Paula Ezeiza, a mortgage expert at financial comparator Helpmucash, referring to the sudden drop from 4.022% to 3.679%, and then stabilisation for the rest of the first half of this year. “It is likely that this pattern will repeat itself and that Euribor will stabilise or fall slightly in the second half of this year,” he adds.

The fall in Euribor comes as the market is already pricing in the ECB’s next rate cut, which is expected to be 25 basis points (from 4.5% to 4.25%) following the Euribor rate easing in recent months. Earlier this summer, Lagarde did not rule out a rate cut at the September meeting, although she stressed that the issue was “very open”. If these forecasts are confirmed, it is possible to foresee that by the end of the year, the Spanish state will again issue more than 400,000 annual home mortgages, significantly higher than last year’s figure, which is expected to stimulate the market. In fact, in recent months the property market in Euskadi has begun to show signs of reacting to the fall in the Euribor rate, since after a year of continuous decline, according to the latest register of mortgages on registered houses published by the National Institute of Real Estate, statistics dated May last year confirm an increase in the number of mortgages signed: 1,700 policies were signed. In Navarre, there were 478 at the same time. In any case, the figures are lower than in previous months.