2024-08-05 05:54:43
The 12-month Euribor, to which most mortgages are linked, saw its biggest daily drop in 16 months on July 31, and analysts now expect it to end the year at 3%, giving borrowers a breather.
The 12-month Euribor closed in July at 3.526%, continuing his retreat since last April. “This means that for a €150,000 mortgage over 30 years, whose review ends in July and with a margin of 0.99% over Euribor, the annual saving for borrowers will be €662. If the loan is 300,000 euros with the same terms, the saving is reduced by 1,320 euros per year”, market players emphasize in Naftemporiki.
March was the last time the Euribor index rose from one month to the next. “The Road to Reducing the Interest Rate on Floating Home Loans was now clear and finally it was paved with the actions of the ECB, when it committed to reduce interest rates in June”, the same sources add.
Now, expectations are in line with the ECB’s calculations of at least two more key rate cuts by the end of the year.
Below 3% in January
The big question for households with a mortgage is how the index will fare and how much further it might fall. Euribor futures help to get an idea. “Right now they are reporting that the mortgage rate will be 3.04% in December. That is, the 12-month Euribor will close the year slightly above 3%, and in January 2025 it is expected to fall below this level”, note the market players.
Two weeks ago, futures were less bullish, seeing the index at 3.23% by the end of the year. Again, this reflects that expectations have improved and that they are discounting a cut in ECB interest rates after the summer.
The looks on September 12
The ECB’s Governing Council will meet on September 12 and most analysts expect a further 25 basis point rate cut to be announced without waiting for the Fed meeting next week.
Christine Lagarde and Jerome Powell will however have the opportunity to “coordinate” during the traditional summer meeting organized by the Fed at the end of the month in Jackson Hole, Wyoming. “On this occasion, Powell and Lagarde will signal how their respective institutions intend to move in September based on a more up-to-date database,” the same sources emphasize.
For the Fed, September will likely mark the start date of the rate cut cycle. Essentially, the expectation is that the US Federal Reserve will start cutting the key interest rate by at least 25 basis points at each meeting in September, November and December. The debate is whether, at least at one of the Fed’s three meetings expected through the end of the year, the cut could not reach all 50 basis points.
In the Eurozone, however, the picture is more complicated: economic activity is slowing down compared to the forecasts made by the ECB. Inflation in services remains high at around 4% even if, overall, disinflationary forces continue to operate. In other words, the ECB’s rate cut speed will be slower than the Fed’s.
Productivity is a problem
As he even mentioned in the last few days, Isabel Schnabel, a member of the ECB’s Executive Committee, in Frankfurt are more concerned about falling productivity than the specific trend of inflation. In essence, Eurotower sees with concern the possibility that low productivity and a recovery in wages following the loss of purchasing power in the eurozone have increased costs for companies, which could lead to higher prices.