Euribor increase will continue to make mortgage repayments more expensiveE.P.
February saw the first increase in the Euribor rate since October last year. The benchmark adjustable rate mortgage index closed last month at 3.671%, representing a 0.062 point increase from January. In practical terms, this will mean that mortgage prices will continue to rise, although customers who will have to renegotiate their mortgages based on last month’s Euribor will experience the smallest price rise in almost two years.. This is because the difference relative to February 2023 is only 13.7 basis points, while in January it was 27.2 basis points.
The fact that the Euribor is rising again suggests that the interest rate cut that some people expected from the European Central Bank this spring may be delayed even further. That is, they will not arrive until the summer and will always depend on the decision of the US Federal Reserve System (FRS). Inflation is showing signs of being more under control on the other side of the Atlantic, where growth and investment data are much stronger than in Europe, but the Fed has given ample signs that it has a steady hand when it comes to stopping any price drift. height. It is therefore taken for granted that the ECB will not make any decision until the US bank does so. However, the fact that inflation entered the eurozone on a more palatable path also suggested that there would be a rate cut, and with it the Euribor. It appears that this is not the case at the moment.
“The market was overly optimistic when it expected ECB rates to fall quickly, which is why Euribor moved closer to 3.5%.. On the other hand, in February it had to adjust its forecasts to reality, which explains why the index rose slightly,” Mikel Riera, an analyst at financial comparator HelpMy Cash, said in a statement. Rising interest rates – up to ten hikes ordered by the ECB from the summer of 2022, with inflation at its peak – have also pushed up the Euribor. The Euribor thus experienced the fastest rebound in its history, although since October, when it reached 4.16% – a fifteen-year high – it has accumulated continuous declines, which have now been interrupted by the February data.
Mortgages with upcoming annual review will increase fees
The new Euribor rate increase will have a different impact on those whose mortgages are linked to this variable index. “Although the growth this month was not very high, the bad news is that this month’s figure is still higher than the rate recorded in the same month last year, so people who should review now are paying off their mortgage annually at a variable rate. we will continue to see the price become more expensive by 10-20 euros per month and we will have to wait for next year’s review to see possible reductions,” promotes iAhorro.
However, on the other hand, those who will continue to see fees fall, at least for now, are those who are going to use this month’s Euribor data to undertake a semi-annual review of their mortgage, which will fall between €40 and €80 per month. Semi-annual view customers are the ones who will benefit the most from the new data. Thanks to the amortization system used in Spain, more interest is paid in the first years of the installment plan, so more mature mortgages will see smaller premium increases.
“The increase in the number of mortgages signed last year that we are seeing now is not very relevant, since the Euribor rate has not changed much since then. However, those who, for example, took out a mortgage in 2021, when the Euribor rate was negative, saw nothing but an increase, some even exceeding 600 euros per month,” points out Simone Colombelli.
Mixed mortgages are becoming increasingly popular in the banking offer, while fixed mortgages are also widespread. According to HelpMyCash analysts, fixed-rate mortgages have benefited the most from these discounts: “There is a price war in this sector,” emphasizes Mikel Riera. The comparator expects Euribor to remain unchanged or trend slightly lower to a minimum of 3.5%, although they do not rule out that it could be lowered further if the rate cut is brought forward. According to the analyst, “the market was overly optimistic, expecting a rapid fall in ECB rates.”
“Euribor is a volatile indicator and should be expected to rise or fall slightly each month. What we don’t expect is for it to rise above the 4% barrier again or suddenly fall to levels close to 3%; “This would not be logical unless there was an unexpected macroeconomic change,” explains Simone Colombelli, director of mortgage lending at comparator iAhorro, in a press release.
This same fluctuation trend suggests that the Euribor decline will occur in the second half of the year. “Although this decline stopped in January, and even in recent weeks there has been some growth, this is a temporary pause caused by the adjustment of overly optimistic expectations about future rate cuts by the European Central Bank. Thus, Euribor is expected to resume its downward trajectory soon,” Funcas explains. “Although the Euribor rate has increased slightly, if we look at its long-term evolution, we are still in a moment of stability within the decline that is expected to be recorded.Colombelli says. In any case, it is advisable to pay attention to what the ECB decides at its next meeting, which will take place next Thursday, and which will serve to analyze the overall situation with inflation after the February indicator has decreased by 0.2% to 2.6%.