Homeowners in Spain have reason to celebrate as the European Central Bank (ECB) continues its cycle of interest rate cuts. The impact is clear: mortgage holders are set to save hundreds of euros annually, with the average mortgage costing €470 less per year.
Falling Euribor and mortgage savings
The Euribor, the reference rate for most mortgages in Spain, began 2024 at 3.679%. It is expected to drop to around 2.4% by the end of the year, driven by the ECB’s efforts to reduce interest rates. Bloomberg analysts predict further cuts, with rates potentially falling from the current 3% to 2.01% by late 2025, stabilising at approximately 2.07% thereafter.
For an average mortgage of €150,528 over 25 years, with a 0.75% margin above the Euribor, this reduction translates to a monthly saving of €39.16—amounting to €469.92 annually.
How savings vary
The savings depend on loan size, remaining term, and repayment structure. Therefore, loans with longer terms see greater percentage reductions in monthly payments:
- 15-year term: €288.24 annual savings per €100,000 borrowed (3.41% decrease).
- 25-year term: €312.12 annual savings per €100,000 borrowed (5.33% decrease).
- 30-year term: €323.76 annual savings per €100,000 borrowed (6.19% decrease).
Shifting trends in the mortgage market
The prospect of lower interest rates has altered mortgage preferences. Mixed-rate mortgages are gaining popularity, while demand for variable-rate options declines. Fixed-rate mortgages are also expected to remain strong in 2025.
Competition among lenders is uneven. High-net-worth clients see aggressive offers from banks while mid- to low-income segments experience less competitive pricing. Large banks, including CaixaBank, Kutxabank, and BBVA, are expected to adjust their mortgage products early in the year.
External factors and ECB policy
External events—such as geopolitical tensions, U.S. Federal Reserve actions, and inflation trends—could influence the ECB’s strategy. These variables may also impact how quickly interest rates stabilise, which is anticipated by mid-2025 at levels around 2–2.25%.
Changes in mortgage modifications
Although government measures have made it easier to switch from variable to fixed-rate mortgages, stricter monetary policy has tempered demand for such changes. In October, mortgage modifications fell by 1.9% year-on-year, with most adjustments related to interest rates.
Growth in mortgage demand
Looking ahead, mortgage demand is expected to rise, driven by factors such as higher property prices and government-backed ICO guarantees for buyers under 35. This combination is likely to fuel growth in the housing market and mortgage sector into 2025 and beyond.
The ECB’s monetary policy is delivering welcome relief for Spanish homeowners, easing monthly financial burdens. While external uncertainties remain, the current trajectory suggests a more affordable future for mortgage holders across Spain.
Also read: Spanish property sales hit highest level since 2007