Euribor rates are expected to fall in 2024, making bank payments a little easier.

Euribor rates will already peak this year, albeit below 2008 records, and are expected to fall through 2024, easing some of the stress for those repaying bank loans, according to analysts contacted by Lusa.

Continued hikes in key interest rates by the European Central Bank (ECB) have seen Euribor (the benchmark home loan rate) reach its highest level since 2008 this year.

Euribor rates had already been rising since April 2022, anticipating a change in monetary policy (in an environment of high inflation), but it was this year that they reached their highest level since 2008, reaching a six-month rate of 4.138% in October (down from 5.431% in 2008).

Euribor rates have fallen slightly in recent weeks and markets expect this trend to continue next year after the ECB kept interest rates unchanged at the last two meetings, and a cut could even occur in the first half of the year (if the ECB comes to that inflation is under control).

On Friday, Euribor closed below 4% in major indicators. The Euribor rate was set at 3.909% for three months, 3.861% for six months and 3.513% for 12 months.

XTB analyst Enrique Thome told Lusa that Euribor rates should continue to decline in 2024 following a “change in the interest rate trajectory.” The fall in Euribor, he explained, is influenced by the decisions of the ECB, as well as inflation, the economic situation and lower interest rates on sovereign debt.

However, he cautions that “these prospects could change quickly if there are changes in the inflation path or other economic indicators that could cause the central bank to rethink its monetary policy strategy.”

According to ActivTrades analyst Mario Martins, after 2023 was “the year with the highest interest rates since 2008”, 2024 “will start with the Euribor rate six months below 4% and will likely end between 3.25% and 3.50%.” He also warns that “unless something unexpected happens that changes the path of inflation normalization to the desired level of 2%, which will pause this easing.”

The Euribor fall could be even greater if the eurozone economy slows significantly, in which case Mario Martins forecasts Euribor six months from the end of 2024 to be between 2.75% and 3%.

When asked about the fact that the three-month Euribor rate is currently higher than the six-month rate, they explained that this is because markets expect a fall in interest rates to occur in the medium term, only in the second or third quarter of 2024. , which mainly affects the long-term Euribor rate.

The fall in the Euribor rate will have an impact on loans, making it easier – albeit slightly – to repay variable-rate home loans as they renew. The growth of Euribor has led to an increase in installments due to the impact of the interest that customers pay.

In November, the average mortgage payment in Portugal was €396, of which €156 was for capital repayments (39% of the total) and interest payments. In other words, 61% of the contribution went to interest payments, while in November 2022 this share was 29%.

According to a simulation carried out for Lusa by Deco/Dinheiro&Direitos, a client with a loan of 150 thousand euros for 30 years, indexed to the six-month Euribor rate and with a “spread” (bank profit margin) of 1%, currently pays the bank about 798. 55 euros per month (taking into account the average December Euribor rate of 3.927%). If Euribor falls to 3.5%, you will pay 760.03 euros, almost 40 euros less.

Although the reduction in Euribor means exemption from installments, there are customers who will have to wait longer to feel the effect. For example, a customer with a 12-month Euribor-indexed mortgage whose installment was renewed last November at a rate of around 4% will have to wait until November 2024 for the installment to be revised downwards.

According to October Bank of Portugal data, the 12-month Euribor represented 37.8% of variable rate home loans, the six-month Euribor 35.9% and the three-month Euribor 23.6%.