Else Beekman
The Euribor. the key reference rate for most variable mortgages in Spain, has dropped this February. This brings relief to mortgage holders after months of fluctuations. Additionally, the European Central Bank is considering continuing its downward path and cutting interest rates again. Based on this, experts predict a promising short-term outlook for those with mortgage debt.
The 12-month Euribor resumed its decline in February. After a temporary increase at the beginning of the year, the index now records a provisional monthly average of 2.408%, significantly lower than the 3.6% recorded a year ago.
With this decline, homeowners with variable-rate mortgages will see further reductions in their monthly payments. Compared to January’s 2.525%, February’s lower rate extends the trend of decreasing mortgage costs. For an average mortgage, this could translate into savings of around €100 per month or €1,200 annually. However, the actual savings depend on factors such as loan terms and interest rate differentials.
The role of the European Central Bank
The Euribor’s downward movement is closely linked to the European Central Bank’s (ECB) monetary policy. The ECB has been reducing interest rates since June last year, implementing five cuts so far, with the most recent 25-basis-point reduction in January bringing the eurozone’s main rate down to 2.75%.
While financial markets initially anticipated another 25-basis-point cut in the ECB’s March 6 meeting, recent comments from policymakers suggest a more cautious approach. ECB Executive Board member Isabel Schnabel and Belgian central bank governor Pierre Wunsch have both indicated that excessive rate cuts could be risky. Wunsch, however, remains open to rates stabilising around 2% by the end of the year, suggesting the possibility of three more cuts in 2025.
Market expectations and forecasts
Analysts are divided on the ECB’s next moves. Some expect two additional rate cuts in 2025, while others foresee up to four, which would lower the rate to 1.75%. The general consensus is that any further reductions will depend on economic growth, inflation trends, and geopolitical developments, including potential trade policies under the new U.S. administration.
Euribor outlook for 2025
Despite differing forecasts, most experts agree that the Euribor is likely to continue its decline in the coming months. Optimistic projections from CaixaBank Research and Bankinter place the index between 2.1% and 2.2% by year-end, while more conservative estimates suggest it could reach 2.7%. This would mean fluctuations above and below that level throughout the year, with limited room for further declines.
Euribor’s decline may shift banks’ mortgage strategies
“After January’s increase, the Euribor has resumed its downward trend this month, but it appears to be more cautious than in 2024,” explains Simone Colombelli, Director of Mortgages at iAhorro in the newspaper Las Provincias. He adds, “This cautious approach could be positive because if the Euribor drops too low—around 1% or below—it could push banks to seek alternative ways to maintain profitability on mortgages. This could mean increasing the number of linked financial products (such as insurance, credit cards, and investment products) or raising fees (for origination, early repayment, and refinancing).”
The iAhorro spokesperson also notes that banks are currently focused on offering fixed and, especially, mixed-rate mortgages to their clients. However, a sharp drop in the Euribor could revive the variable-rate mortgage market, a product that is currently unprofitable and largely avoided by borrowers.
Also read: Euribor surpasses 4% for the first time since 2008