The Euribor Decreases in May 2024 to 3.680%

1 June, 2024 | Antonio Beltrán

The Euribor decreases for the second consecutive month and this time it settles at 3.680%. Gradually, it is moving away from 4%, doing so at a good time of the year, as in the same months last year, the Euribor was on an upward trend and currently marks a downward trend.

For example, if in April 2023 the Euribor was at 3.757%, in May 2023 it was already at 3.862% (upward trend). However, if in April 2024 it marked 3.703%, now in May 2024 it indicates 3.680% (downward trend).

This is very good news for people and families with variable-rate mortgages, as each month the reduction in monthly payments that are reviewed will be more pronounced if the downward trend continues.

Why is the Euribor Decreasing Now?

The entity that marks the upward or downward trend of the Euribor and dictates its evolution is the European Central Bank (ECB) with its decisions to lower or raise interest rates. In turn, these decisions to make money more expensive or cheaper are ordered based on how inflation evolves, that is, the cost of the shopping basket.

If inflation rises excessively, or in other words, if our purchases become more expensive (increased shopping basket cost), the ECB raises interest rates, which is the same as saying it makes money more expensive. Conversely, if prices fall, meaning the shopping basket is cheaper, then the ECB lowers interest rates (makes money cheaper).

During 2022 and 2023, the ECB raised interest rates very strongly and in less than a year it went from the level of 0% to 4.5%. This increase in the cost of money was ordered by the ECB to address inflation, which reached double digits in the eurozone when the desirable inflation is close to but below 2%.

But now we are on the opposite path, meaning it is now much more prudent to de-escalate the high increases in the cost of money that occurred during 2022 and 2023, and it is very likely that at the next ECB Governing Council meeting, the first interest rate cut will be ordered after 10 consecutive increases.

So very soon we will be able to add a new row to this table, but unlike the previous ones, it will be a rate cut instead of an increase.

The next monetary policy meeting of the ECB Governing Council is scheduled for June 6, 2024. There is a very high probability that the first interest rate cut will be agreed upon at this meeting. Most likely, it will be 25 basis points, so it will go from the level of 4.5% to 4.25%.

The Interbank Market is Already Discounting this First Rate Cut

Financial markets move much more with rumors and expectations than when the news actually occurs. In our case with the Euribor, its value is marked by the interbank market, and those who manage this market are fully aware that interest rate cuts are more than likely, which is why the Euribor has been falling for two consecutive months even though the rate cut has not yet been ordered.

In March 2024, there were better prospects for rate cuts. They were going to happen more quickly. This optimism has now cooled, which will cause the rate cuts, although they will come, to occur much more slowly, with months between each cut.

What is the Euribor Right Now?

In the following table, we show the evolution and values that the Euribor has been marking since January 2023. We clearly see in the last two rows that the Euribor has experienced its second consecutive drop in May.

We also observe that while last year the Euribor marked a higher value month by month, now in 2024, it follows the opposite path, which will be increasingly positive for citizens with variable interest rate mortgages.

Current Euribor Data:

  • A month-to-month decrease of 0.023%.
  • A year-to-year decrease of 0.182 points. This is a year-to-year decrease more than three times higher than that in April. The year-to-year decrease means that mortgages that are reviewed annually based on the Euribor value of May will have a lower monthly payment once the review is done.
  • A six-month decrease of 0.342 points. This means that there will also be reductions in the monthly payments of mortgages that are reviewed semi-annually with the new May Euribor data.

Euribor Forecasts for 2024 and 2025

The forecasts from Bankinter’s analysis department remain the same as the previous month. The department continues to be equally optimistic about Euribor reductions for 2024 and 2025.

It indicates a central estimated value for 2024 of 3.25% and 2.75% for 2025.

These forecasts indicate that during this year and the next, there will be a series of reductions in the cost of money, leading to a gradual decline in the Euribor.

Mortgages Following the Current Evolution of the Euribor

It’s time to see practical examples of how mortgages will look after the new Euribor value in May 2024.

Here we present six mortgages from €50,000 to €300,000 of mortgage debt with a remaining term of 20 years and a differential over the Euribor of 1%.

As we can see in the table, the mortgages experience reductions that, although not very significant, are already higher than the corresponding reductions that occurred in the monthly payments of mortgages reviewed with the Euribor value of the previous month.

A mortgage with an outstanding principal of €100,000 with a remaining term of 20 years and an interest rate of Euribor + 1% differential will go from a monthly payment of €652.35 to another payment of €642.40 with the new Euribor value. This translates into a monthly payment reduction of €9.95. All the above data are approximate.

Continued Reductions in Mortgages

Last month, we said goodbye to the increases in mortgage payments. This month, we continue with the reductions in the monthly payments of variable interest rate mortgages linked to the Euribor. This month, the reductions are more significant than the previous month.

According to forecasts, the reductions will continue and will be accentuated in the coming months as the ECB begins to apply interest rate cuts, which, if everything goes as planned, will result in new declines in the Euribor.