What effect will the Euribor fall have on mortgages in Spain and how much will people save?

The Euribor, the market rate indicator to which most mortgages in Spain are linked, closed out the month of May slightly above 2%, at 2.08%, its lowest level since August 2022. Perhaps the most important thing to note is that it is substantially below the levels of 12 months ago. In May 2024 it stood at 3.68%, so anyone with a mortgage checking their mortgage payment this month will see a substantial reduction.

Let's look at what will happen to someone who took out a mortgage in Malaga province just last year and is now facing a recalculation of their monthly instalment at the 12-month marker. The average mortgage taken out in the province in May 2024 was close to 190,000 euros. Assuming a repayment period of 25 years and a differential over Euribor (Euro Interbank Offered Rate) of one percentage point, the initial monthly payment would amount to 1,075 euros, whereas from now on it would be reduced to 914 euros. This means a saving of just over 160 euros per month, which at the end of the year would amount to 1,940 euros.

If, instead of taking the average mortgage signed in the province, we take the average homeowner loan signed in Spain just a year ago, the numbers change somewhat. Since the national average mortgage is 141,500 euros, this would mean a monthly payment starting at 800 euros that has now dropped to 680 euros with the new Euribor rate as of May this year. This means a saving of 120 euros per month and 1,435 euros annually.

There are also mortgages whose instalments are revised every six, not 12, months. For a loan of 190,000 euros, at Euribor with a spread of 1%, payment instalments would go from 1,000 euros at the end of last year to 900 euros in the middle of this year. This means a reduction of around 100 euros per month and almost 600 euros less to pay over the next six-month period.

There is still a chance that the Euribor will drop further, but not much more. That is, for example, what the experts at Ebury predict: they believe that the ECB (European Central Bank) is likely to cut interest rates in June, although it could be one of the last moves in that downward direction. "The consensus among ECB members seems to be that the cycle of cuts is nearing its end and that inflation is converging adequately to the target level thanks to the appreciation of the euro and the fall in energy prices", says these finance specialists. They added: "We believe that the cut at the next ECB meeting is almost guaranteed but, from June onwards, everything will depend on how the trade negotiations between the European Union and the United States evolve." For this reason Ebury anticipates that there is a possibility that the Euribor will break the 2% barrier once the ECB meeting of 5 June is held, although at that level the indicator would already be very close to bottoming out.

It should not be forgotten that the Euribor reached around 4.16% in the autumn of 2023. Since then it has been falling at a pace largely set by both the easing of inflation - triggered by Russia's invasion of Ukraine - and the lowering of the price of money by the monetary authorities.

Cristina Gavín, of Ibercaja Gestión, also assumes that the ECB will lower interest rates next week, but points to the possibility of another reduction before the end of the year, possibly happening in September.