Euribor frees mortgage holders more than €1,000 a year in biggest drop since 2013 | Financial Markets

The hole that the holidays left in the pockets of many Spaniards can be partially compensated for by an indicator that has not stopped showing positive results throughout August: Euribor. Those who have a contract with a variable mortgage subject to renegotiation and are now returning to everyday reality after the summer holidays will be surprised to see their interest account at the bank fall sharply, thanks to the biggest monthly fall in Euribor since February 2009. According to the annual review, the August figure will leave the biggest reduction in the down payment since March 2013. This will also make life easier for those looking for a mortgage, as they will be able to get better conditions.

In a scenario of reversal of trends at central banks, which are clearly already focused on cutting interest rates after almost two years of tight adjustments to contain inflation, Euribor will turn around faster than analysts expected. Two days before the final close, the average is 3.173%. That is 0.353 points less (the sixth-largest cut ever) than in July, when it had already retreated. On an annual basis, the cut is now only nine-tenths, and you also have to go a long way back to find more precise data, to March 2013.

Rates have already been reduced for five months in a row, but this time the relief is much more noticeable than usual. Assuming that the average mortgage (€140,451, payable in 23 years, according to the National Institute of Statistics for 2023) is one point lower, the revision of the August Euribor data would mean savings for those renewing their mortgage now amounting to €84.6 per month and €1,015 per year.

“This is certainly good news for mortgage holders, who are starting to see relief after the significant increases seen in previous surveys, especially in 2023,” says Patricia Suarez, president of Asufin. Last year, the sudden increase in the cost of installments due to rising interest rates pushed Euribor up by more than three percentage points, and the 4% barrier was exceeded for the first time in 15 years, putting another strain on the economy of many families in a context of high inflation, which is now gradually becoming less severe but still persists.

As for the eternal dilemma of whether now is the right time to choose a fixed, variable or mixed mortgage, the Financial Services Users Association remembers that those with variable rate debt no longer have the urgency they had in the past to demand a change in terms because they will see their debt reduced as they renegotiate their mortgages with a lower Euribor rate.

This phenomenon, namely the subrogation from variable to fixed, in order to have the peace of mind of knowing in advance the amount to be paid, without the uncertainty of the growth of revenues, was clearly marked in the summer of 2022, which coincided with the start of the ECB’s rate hikes, when a veritable avalanche of applications for an unstoppable increase in quotas began, and this continued for several months.

Now, according to Asufin, the scenario has changed. “Those who are going to get a mortgage should avoid a high fixed rate, certainly above 3.5% or 4% is not recommended, because it is very likely that they will end up paying a premium, despite the fact that they are guaranteed a fixed fee that protects them from rate fluctuations,” they recommend. As for the mixed mortgage, which is a big bet in these times of uncertainty, they still consider it an interesting alternative, but not at any price, “as long as it starts with a reasonable fixed rate, no more than 3%.”

That level, 3%, is the psychological barrier that Euribor is poised to breach soon. It was trading at 3.119% on Wednesday, so it may not take long to cross that level. But it will have to look for new stimuli in September to do so. There were plenty in August: fears of a US recession, Black Monday on the stock markets, and the growing idea among investors that central banks will be forced to cut rates faster than they initially expected this year have contributed to the deflation of the Euribor rate, which on August 6 posted its biggest daily drop in eight months.

“The two lines of evidence converge: the ECB’s own rate cut a couple of months ago and the fact that the United States has clearly spoken out in favor of cutting rates before the elections,” economist Javier Santacruz concludes.

Its rapid fall has exceeded the estimates of companies such as Bankinter, whose research department predicted that the 12-month Euribor could reach 3.50% in December, fall to 3% in 2025 and rise slightly again to 3.25% in 2026. As we have seen, these figures, published in June, now seem too high. Leopoldo Torralba, an economist at Arcano, believes that the evolution of Euribor is consistent with a period of high uncertainty. “In terms of fundamentals of growth and inflation, official rates are very high and it is normal that at some point the expectations of a future fall accelerate and this pulls Euribor down.”

Advantages

Beyond the benefits it brings to mortgage holders and those planning to take on more debt, the fall in Euribor has other consequences: by leaving more money in people’s pockets, it favors consumption. It also gives breathing room to highly leveraged companies, which can more easily refinance their debt. And it hurts the profits of the banks, which have benefited most from their rise by charging higher fees for their loans. Last month, ECB Vice President Luis de Guindos warned that bank profitability had “hit a ceiling” because the benefit of higher rates was no longer in the equation.

On paper, the fall in Euribor should also stimulate the signing of mortgages and the purchase and sale of houses at a time of relative sluggishness: in Spain, almost 300,000 houses were sold in the first six months of this year, down 4.5% on the same period in 2023, according to the National Statistics Institute. But the resistance of property prices to falling throughout the high-rate cycle – an unusual and unexpected event caused primarily by a lack of supply – makes it difficult for potential mortgage holders to find new demand at more attractive interest rates that meet the requirements of the real estate market. banking or make it easier to find a home at a price that matches their income, especially since cheap debt and high rents tend to intensify competition in the buying and selling market.

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