The Euribor, the primary benchmark for variable-rate mortgages in Spain, saw its largest drop in 11 years this July, closing at an average of 3.526%. This decrease marks the lowest level since January 2023, driven by moderating inflation and expectations of interest rate cuts by central banks.
For an average mortgage of €140,451 over 23 years, this reduction translates to a monthly saving of €64.8 and an annual saving of €777. The Euribor’s drop from 4.149% a year ago has provided much-needed relief to homeowners, significantly reducing their monthly payments, writes CincoDías.
Economic implications
This downward trend in the Euribor not only benefits individual homeowners but also boosts the broader economy by increasing disposable income. Reduced mortgage payments allow for greater consumer spending, savings, and investments. Additionally, it lowers the risk of loan defaults and makes homeownership more accessible, potentially revitalising a sluggish mortgage market.
Future trends
Economists predict that the Euribor will continue to decline until official interest rates stabilise around 2% within the next two to three years. This trend could shift borrower preferences from fixed to variable-rate mortgages, though the decision remains complex due to market uncertainties.
Expert insights
Leopoldo Torralba from Arcano and Javier Santacruz highlight the potential for continued reductions in the Euribor, cautioning that while fixed-rate mortgages offer stability, variable rates might become more attractive as the Euribor falls. Rafael Alonso from Bankinter notes that although banks might see reduced earnings from lower interest rates, they benefit from a stable and solvent customer base.
Strategic considerations
Prospective homeowners face the challenge of timing their mortgage applications. While waiting for further reductions in the Euribor might save on interest, rising property prices could offset these savings. Experts like Miquel Riera from HelpMyCash and Juan Carlos Higueras from EAE Business School advise negotiating terms with banks rather than postponing purchases.
Looking ahead
With the Euribor’s peak of 4.160% in October 2023 now in the past, analysts expect continued easing of mortgage payments into the autumn. Antonio Gallardo from Asufin and Hugo Rodríguez from CSIC underline the cautious approach of the European Central Bank (ECB), emphasising the difficulty of reaching the final 0.6% reduction to meet inflation targets.
Also read: Inflation rate eases in July due to electricity and food prices