Euribor accelerated its decline in October, posting its biggest fall in nearly 15 years | Financial markets

Those with adjustable rate mortgages continue to gain purchasing power thanks to the collapse of Euribor. The fall in the index in October was particularly intense for two reasons: its comparison with the same month last year, when it hit a recent high, and the European Central Bank’s new interest rate cut – its third in a year -. which looks set to continue in future meetings. As a result, Euribor ended the month at 2.691%, its biggest year-on-year decline since December 2009, almost 15 years ago.

In hard euro terms, this means significant savings for those currently renegotiating their loans. For an average mortgage of €140,451 payable in 23 years, according to the National Institute of Statistics for 2023, with a difference of one point this would mean paying €126 less per month, or equivalently €1,515. euros per year. All this money can now go towards consumption, reducing family debt by paying off the mortgage, or other income-generating savings products.

The trend is vertical. This is the seventh consecutive monthly decline, and October’s drop was the second-largest of all, behind only August’s. Bad days were the exception: of the 23 sessions this month, the Euribor fell in 17 and rose in only six. Antonio Gallardo, an economic expert at Asufin, an association of financial service users, said the monetary policy decision was a turning point. “This month the Euribor index went through two stages: the first before the ECB meeting (October 17), when it began to rise compared to last month’s close, reaching 2.82%. And another one after the meeting, with greater consensus in the market that the decline will be faster and deeper.”

The prevailing view is that weak eurozone growth and good inflation data have cleared the way for Euribor, as Gallardo explains. “In a year, interest rates will rise by about 2.5% (currently they are 3.25%), and Euribor will be even lower. There are already analyzes suggesting a 2% Euribor rate starting in the second half of 2025. There are concerns about a slowing economy. And the tension in the Middle East does not extend to fuel prices,” he sums up.

There are timid bumps in the road: on Wednesday it was announced that G20 GDP growth in the third quarter was four-tenths higher than expected. A prioriThis mitigates the drama of the economic deterioration, at least in the short term, giving the ECB some leeway. In addition, Frankfurt forecasts a rebound in eurozone inflation during the final quarter due to the energy base effect. And it is already materializing: on Thursday it became known that in October it rose from 1.7% to 2%, which is in line with the ECB’s target, but a tenth more than Reuters analysts expected. Regardless, with Germany and France limping along, the debate is now focused on whether the December rate cut should be 25 or 50 basis points, rather than whether it should happen.

Economist Javier Santacruz sees no major obstacles to Euribor. “Things are on the expected path, perhaps it could accelerate a little more before the end of the year with the next rate cut. At least in the short term, this trend is irreversible, since inflationary tensions are under control and the growth rate of the money supply is already significant. M3 is growing at about 3% year on year,” he notes.

Better access to a mortgage

On paper, the Euribor rate cut should make it easier to buy and sell homes, allowing mortgages to be purchased by people on lower wages, who could thus avoid a spiral of rising rents. By reducing the amount of the mortgage payment they will pay, they will not neglect the requirements of financial institutions, which usually do not allow it to exceed, in the case of the most lenient, 40% of salary. Higher wages will also help. “Banks make very good offers for the best profiles: fixed mortgages that are very close to 2% NIR, and mixed mortgages below this interest rate,” says Simone Colombelli, director of mortgages at iAhorro.

However, Santacruz said there are other factors before predicting a sales recovery. “Mortgage firms have started to become more active in recent months, but overall this will not be easy as the deleveraging process of households in Spain results in lower debt on their main investment asset such as housing.”