The Euribor at 12 months says goodbye to September with an average of -0.492%, which represents a slight rise from -0.498% in August. The index thus breaks with three consecutive months of declines, mainly due to a small change in the monetary outlook. At its last meeting, the European Central Bank (ECB) took the first step toward reducing expansionary policy by modestly lowering asset purchases. In addition, the uncertainty about the possible bankruptcy of Evergrande in China caused during some days variations in the Euribor, both upwards and downwards, stronger than usual, depending on the market. All in all, the indicator to which most variable mortgages are referenced continues at minimum levels close to -0.5% and will make the mortgages under review again (albeit slightly).
The ECB still does not speak of a withdrawal of stimuli or tapering, but announced that the purchase of assets of its special pandemic program (PEPP, for its acronym in English) will be reduced at a moderate pace due to the improvement of the economic outlook. The market had discounted this move. Thus, the Euribor maintains a lateral movement between -0.5% and -0.485%.
The reference rate continues to move in line with European economic policies. According to Joaquín Robles, of XTB, the slight increase in the Euribor in recent weeks has been contributed by the rebound in inflation and the warnings from central banks of a monetary tightening earlier than expected. The analyst sees it as “difficult” for the Euribor to fall below the -0.5% level again and believes that “from now on it only remains to go up.”
He adds that, although rate hikes are not expected in Europe until at least 2023, speculation about the future rate hike will mark the evolution of the Euribor. “As the withdrawal of stimulus begins and the first rate hike approaches, we may see rallies to the -0.35% area.”
The president of the ECB, Christine Lagarde, recently assured that the economic recovery of the euro zone is increasingly advanced and that the increase in prices will be temporary, so the body does not yet consider raising the governing rates.
“Everything indicates that the Euribor will continue to register values below 0%. However, it could escalate and break that barrier if inflation in the euro zone exceeds 2% in the medium term (once the pandemic is over) and the ECB decides raise their interest rates to contain it “, they affirm from HelpMyCash. For his part, Ignasi Viladesau, investment director of MyInvestor, assures that” the expectations of interest rates are especially affecting the Euribor at 12 months from the end of August “, but believes that “it is difficult” that the ECB is going to raise the deposit facility rate soon, so “the Euribor will be anchored in the short term.”
In its new strategy report for the fourth quarter, Bankinter’s analysis department estimates that the index will continue to rise moderately until closing this year at -0.43% and standing at -0.32% in 2022. By 2023 it will reach -0.18%.
Lowering of mortgages
On the other hand, the mortgage payments will be cheaper whether the review is annual or semi-annual, since in September of last year the Euribor marked a higher rate, of -0.415%, as it did six months ago, when it was at – 0.484%. Thus, for an average mortgage of 150,000 euros at 25 years referenced to the Euribor plus a differential of 1%, the monthly bill will be lowered by 5.12 euros if the review is annual (61.44 euros per year) and by little more than 30 cents per month if the review is biannual.
The interest of a variable mortgage is reviewed once a year or semester, depending on what is indicated in the deed. When the update date arrives, the bank takes the last published value of the corresponding reference index (generally the Euribor in its one-year modality) and adds it to the differential to calculate the interest applied from that moment and the new amount of the monthly installments.
Despite rising slightly in September, the Euribor has registered its fourth lowest rate so far this year. The Euribor only registered lower values in January (-0.505%, the historical minimum), February (-0.501%) and August (-0.498%). “Given its evolution, it is more than likely that it will close 2021 with a value close to -0.5%”, they indicate in HelpMyCash, where they insist that the key will be inflation.
“The Euribor remains stable month by month with small rises and falls of little importance. This is going to be the trend of the next few months unless there is some radical change in the economic policies of the ECB, something that is ruled out at least in the next two years “, says the director of Mortgages of iAhorro, Simone Colombelli.