The Euribor rate falls below 3% and reduces mortgages considered in October by 100 euros per month.

October will be the sixth month in a row of reductions in payments on variable rate mortgages, which are renewed annually (most of them in our country). More precisely, the Euribor reduction represents a saving of €100 per month for an average loan of €150,000 over a term of 25 years, with a fee calculated according to the value of the underlying index plus a difference of one percentage point.

In September, Euribor fell to an average of 2.94%, a low not seen since November 2022 following the second interest rate cut by the European Central Bank (ECB). And as the chart of this information shows, the daily performance of the mortgage index continues to decline, given expectations that the monetary authority chaired by Christine Lagarde will continue to reduce the official “price” of money in the eurozone in the coming years. months.

From the August figure (3.166%), the decrease is a couple of tenths. But since September 2023, when Euribor closed at an average of 4.149%, the decline has been very pronounced, more than one percentage point at a time. The drop is also important for those who renegotiate their mortgage every six months. In March this year, Euribor remained at 3.718%.

“If the review is semi-annual, the savings will be slightly less (than if it were annual), because Euribor has not fallen so much over the last six months, but there will still be a lot. For the original example taken (loans of €150,000 over 25 years), monthly payments would reduce on average from €852 to €787. Thus, a person with a mortgage will pay approximately 65 euros less per month and approximately 394 euros less per semester,” explain experts at the HelpMyCash comparator.

In an interview with elDiario.es published this Sunday, Economy Minister Carlos Corpo noted that “based on the gradual slowdown in inflation (in Spain it fell to 1.5% in September), all analysts expect a continuation of rate cuts. The ECB started even earlier than the Federal Reserve itself, and we must continue to move forward, taking into account our economic activity and the fact that Germany and France (whose economic growth is stagnant) need this stimulus.”

The monetary authority began the beginning of the end of the tight monetary policy cycle in June. Since then, he has twice reduced the official “price” of money: from 4% to 3.5%.

On the one hand, the fall in Euribor is a relief for many families with mortgages at variable interest rates (in our country – three out of four). At the same time, in the context of rising prices, many experts warn that cheaper loans will lead to an even greater increase in housing prices. The great paradox is that the monetary austerity measures (with higher rates and higher financing costs) that the ECB began to implement from July 2022 did not lead to a fall in property market prices.

ECB roadmap

With further rate cuts in the coming months, the ECB’s governing board expects headline inflation to stabilize at its theoretical target of 2% over the course of the year and is confident the eurozone will avoid a recession. In this “central scenario”, the main monetary policy decision-making body of the single currency countries is divided into two parts depending on the main risks that currently exist. Part of the governing council is concerned about weak economic growth, especially in Germany. The other, the most orthodox, is related to the “stickiness” of inflation in the services sector.

The ECB’s governing council consists of the governors of the central banks of all euro partner countries and the executive committee of the European institution, chaired by Christine Lagarde and of which Luis de Guindos is vice-president. On September 12, the new governor of the Bank of Spain, José Luis Escriva, made his debut at the regular meeting of this body, which is held every six weeks. The ECB’s next monetary policy meeting will take place on October 17, and the next on December 12.

“Spain is one of the countries where rate increases make the most difference. Households pay higher interest due to the prevalence of adjustable rate mortgages and have lower interest yields (on deposits). In Germany and France, households are really benefiting from this growth,” Angel Talavera, chief European economist at Oxford Economics, explained last week.

On the other hand, the combined weakness of the German and French economies currently poses the greatest threat to part of the ECB’s governing council. The risk is that the aggressiveness of rate hikes goes too far and inflation falls below 2% within a year or later. In this scenario, the main concern would be deflation, a monster that could be even more impoverishing than inflation because it would be associated with recession and job losses.

In short, the ECB’s strategy of damaging the economy by raising interest rates to combat rising prices always included this possibility. In fact, another part of the monetary institution’s governing council remains more aware of the resistance to curbing inflation in the service sector.

“Inflation in the services sector has remained persistently high in recent months. However, a gradual decline is still expected, accompanied by lower wage growth and other spending, while the delayed impact of previous monetary tightening continues to be passed on to consumer prices,” the ECB itself details in its latest forecast.

According to the institution’s analysis, this forecast is called into question for two reasons. Firstly, due to a “labor shortage” across the eurozone in the tertiary sector, which could mean “further increases in wages”. The second is due to changes in family consumption trends towards leisure following the shock caused by the pandemic. A transformation that makes demand more resilient despite the damage caused by rising costs of mortgages and credit in general.

Currently, with official interest rates at 3.5%, financing conditions continue to be “restrictive,” as the ECB itself describes them, meaning they are harming households’ purchasing power and companies’ investments.