Euribor rates will have already peaked this year, although below 2008 records, and are expected to fall over the course of 2024, easing some of the strain on those who pay credit to the bank, according to analysts with who Lusa contacted.
The continued increases in key interest rates by the European Central Bank (ECB) have led to the Euribor (reference rates for home loans) reaching the highest level since 2008 this year.
Euribor rates had already been rising since April 2022 in anticipation of the change in monetary policy (in light of high inflation), but this year they reached their highest level since 2008, with a six-month interest rate of 4.138% in October ( below 5.431% in 2008).
Euribor rates have fallen slightly in recent weeks and markets expect this trend to continue next year after the ECB kept its policy rate unchanged at its last two meetings and a cut could even occur in the first half of the year (if the ECB assumes that inflation is under control).
On Friday, the Euribor closed below 4% in key terms. The Euribor was set at 3.909% for three months, 3.861% for six months and 3.513% for twelve months.
Speaking to Lusa, XTB analyst Henrique Tomé stated that Euribor rates should continue to fall in 2024 due to “a change in the interest rate trajectory.” According to him, the decline in the Euribor is influenced by the decisions of the ECB, but also by inflation, the economic situation and the decline in government bond interest rates.
However, he warns that “these perspectives could change quickly if there are changes in the trajectory of inflation or other economic indicators that could cause the central bank to reconsider its monetary policy strategy.”
For ActivTrades analyst Mário Martins, after 2023 was the “highest interest rate year since 2008”, 2024 will start with the Euribor six months below 4% and will probably end between 3.25% and 3.50%. This, he also warns, “unless something unexpected happens that reverses the path of inflation normalization to the desired level of 2%, which would suspend this relief.”
The fall in the Euribor could be even greater if the eurozone economy slows down significantly. In that case, Mário Martins expects that the Euribor in six months at the end of 2024 will be between 2.75% and 3%.
When asked about the fact that the three-month Euribor is currently above the six-month interest rate, they explained that this is happening because the markets expect the decline in interest rates to occur in the medium term, only in the second or third quarter of 2024. , which mainly has an impact on the longer term Euribor.
The drop in the Euribor will have an impact on lending, easing repayments on variable rate home loans – albeit slightly – as they are updated. Due to the increase in the Euribor, installments have increased due to the impact of the interest paid by customers.
In November, the average mortgage loan payment in Portugal was 396 euros, of which 156 euros consisted of repaid capital (39% of the total) and interest payments. In other words: 61% of the repayment went to interest payments, while this share was 29% in November 2022.
According to simulations carried out for Lusa by Deco/Dinheiro&Direitos, a customer with a loan worth 150 thousand euros, for 30 years, indexed to the six-month Euribor and with a ‘spread’ (bank profit margin) of 1%, currently pays the bank approximately 798.55 euros per month (taking into account the average December Euribor of 3.927%). If Euribor falls to 3.5%, you pay 760.03 euros, almost 40 euros less.
Although the reduction in the Euribor means a relief in installment payments, there are customers who will have to wait longer to feel the effect. For example, a customer with a Euribor-indexed home loan with a term of 12 months whose repayment was extended last November, at approximately 4%, will have to wait until November 2024 before the repayment is revised downwards.
According to October data from the Bank of Portugal, the 12-month Euribor represented 37.8% of variable rate housing loans, the 6-month Euribor 35.9% and the 3-month Euribor 23.6%.
Source: DN
