Euribor rate rises to 3.7% and stops contraction of mortgage loans

Yesterday Euribor reacted decisively to the results of its June meeting, at which the European Central Bank (ECB) put some hard work and some sand: it cut interest rates for the first time since 2016, but sent a signal that will hold restrictive policies until inflation is under control.

The 12-month mortgage index, which measures the cost of about four million variable-rate loans in Spain, rose to 3.701% yesterday from 3.684% on Thursday, breaking a streak of three consecutive declines. The preliminary average monthly rate for June is 3.702%, already above June’s 3.68% and approaching the yearly high of 3.718% at the end of March.

Experts explain that the 25 basis point rate cut was more than taken into account. The key point was the ECB’s new guidance on future cuts, which disappointed the market. ECB President Christine Lagarde did not clarify her roadmap for the rest of the year after raising her inflation forecast by two tenths for both 2024 and 2025.

Euribor reflects uncertainty about the future of rates as banks (Euribor is set every day based on the prices at which businesses lend to each other) believe the price of money will remain high for longer.

Experts believe the index, which has been uneven throughout the year, will follow the same erratic line until the ECB offers more clarity.

For now, mortgage prices will fall less than expected, and the expected rate of decline in the monthly letter paid by families will also be reduced.

They will continue to benefit in the next monthly comparison revisions to the 2023 Euribor record levels. The index rose above 4% for the first time in June last year and peaked in October at 4.16%. 3.70% in May compares with 3.86% in the same month in 2023, meaning households with an average mortgage would save €26 per month.

In terms of mortgage rates, despite Euribor volatility, banks have been improving conditions throughout the year, a process that may smooth out in the coming weeks.

Experts believe Thursday’s cut in the discount rate will not have much impact on the cost of short-term borrowings and that companies that have already worked hard during the year will not move much until the situation clears up and the Euribor recovers. stability.

At best, there may be some downward adjustment for businesses that lagged in applying rates during this year.

Attractive offers

What seems ruled out is that an increase could occur from current levels as maintaining production levels is a priority for banks.

Spanish banks have one of the most attractive mortgage offers in the eurozone.

Before the ECB meeting, four organizations (see attached table) offered prices below 3.5% at a fixed rate and with a maximum bonus. And with a variable rate, three banks included in the table the difference in the Euribor rate of less than 0.5%.