The Euribor rises in September to 4.149%.

30 September, 2023 | Antonio Beltrán

The Euribor, after the pause in August, rises again in September to 4.149%. In August, the Euribor had retreated, and in September, it stands at the same level as in July: 4.149%. The Euribor is currently at levels not seen since 2008.

The reason for the Euribor showing a higher value than the previous month is very clear. The European Central Bank (ECB) has decided to implement a new interest rate hike. After ordering 9 consecutive increases in the price of money, the European economic institution has steadfastly imposed a tenth hike.

Currently, interest rates are already at 4.5%, when just over a year ago, in June 2022, they were at 0%. Here we show the 10 consecutive increases applied by the ECB, some of them very forceful, like those in September and October of 2022, with a rise of 75 basis points.

Let’s remember that the interest rate is the price that banks pay to central banks to borrow money. Thus, European banks source money from the ECB at a current interest rate of 4.5%. From an average of the interest rates at which major European banks lend money to each other, the index known as Euribor is created. Therefore, when the ECB raises or lowers the interest rate, the Euribor also rises or falls respectively.

Euribor Forecasts for 2023, 2024, and 2025.

The analysis department of Bankinter has updated the Euribor forecasts again. A month ago, it was believed that the rate hikes had already ended, but the new increase applied in September has prompted a review of what analysts and experts predict about the future of the Euribor.

Currently, the department sets a central value for the Euribor in 2023 at 4.10%. A value of 3.90% for 2024 and 3.40% for 2025.

The ECB has implemented the largest consecutive interest rate hike since the creation of the Euro.

Since the inception of the Euro, the ECB has never applied such significant and consecutive rate hikes to the price of money. Even though Europe is already showing weak growth data, likely a result of the rapid monetary tightening by the ECB, the institution has not wavered. The ECB demonstrates absolute determination and continues its relentless fight against inflation, which, on the other hand, is not coming from the demand side but from supply.

The positive note is that Christine Lagarde reported in the press conference, following the Governing Council’s decision to execute a new rate hike up to 4.5%, that some governors would have preferred a pause. However, there was still a solid majority that ultimately tipped the balance in favor of the increase. But it’s a good sign that there isn’t unanimous agreement in continuing to tighten monetary policy.

The ECB is determined to curb inflation at all costs and seems unconcerned with data showing that the Netherlands has already entered a recession, Italy is on the brink of doing so, and Germany continues to exhibit delicate economic figures.

It seems that now there will be a “sufficiently long” period, in Christine Lagarde’s words, in which the current rate levels will substantially serve to achieve the inflation target. The ECB is always ensuring that inflation, that is, the increase in the cost of the consumer basket, remains close to, but below 2%.

Considering Bankinter’s forecasts regarding the Euribor, the logical conclusion is that by 2024 and 2025, the ECB will have achieved its goal and will begin to lower interest rates, and consequently, the Euribor will decrease.

Current Euribor Data

The current Euribor shows the following values:

• A monthly increase of 76 basis points.

• A year-on-year increase of 1.916 points. A year ago, the Euribor was at 2.233%.
• An accumulated rise during 2023 of 1.131 points.

This results in an increase in the cost of variable interest mortgages that are reviewed quarterly, semi-annually, or annually, with the new Euribor data from September, based on the lowest value the Euribor had 3, 6, or 12 months ago, respectively.

Euribor Impact on Mortgages

The increase that variable interest mortgages may experience when revised with the new Euribor data will quantitatively depend on the mortgage debt, the remaining term, and also where the mortgage was established. A mortgage set up for a property in a small town is not the same as one in a large city where the mortgage debt might be higher due to a greater price per square meter.

We present to you our classic table composed of the data from 6 mortgages with outstanding debts ranging from €50,000 to €300,000. The remaining term is 20 years, and the differential over the Euribor is 1%.

 

At first glance, it’s evident that the larger the outstanding capital to be settled on the mortgage, the greater the impact of the Euribor increase.

The first row shows the monthly installment of a mortgage with the Euribor value of September 2022: 2.233%

The second row presents the monthly installment of the same mortgages according to the Euribor value of September 2023: 4.149%

The row with the red numbers indicates the increase in the monthly installment of the variable interest mortgage with the current Euribor value.

The next two remaining rows show how much the mortgage will rise if the Euribor reaches 4.5% or 5%. Let’s hope it doesn’t.

*These are not actual figures. The Euribor has not reached these values.