Euribor rates diverge as ECB meeting approaches
Portuguese homeowners with variable-rate mortgages saw mixed movements in Euribor rates this week, as markets position themselves ahead of the European Central Bank's next monetary policy meeting later this month.
The six-month Euribor, which became the most widely used index for variable-rate housing loans in Portugal from January 2024, fell to 2.947% — down 0.007 percentage points from the previous session. However, the three-month and 12-month rates both moved higher, with the 12-month benchmark climbing to 3.194%, up 0.017 percentage points.
What this means for mortgage holders
According to the Banco de Portugal, the six-month Euribor accounted for 40.3% of all variable-rate home loans for permanent residence as of August, making it the dominant index for Portuguese households. The 12-month rate represented 31.03% of the total stock, while the three-month rate covered 24.27%.
The three-month rate also rose, reaching 2.636%, an increase of 0.034 percentage points.
For a typical borrower with a €150,000 mortgage over 30 years linked to the six-month Euribor with a 1% spread, the current rate translates to monthly repayments of approximately €692. The upward pressure on rates seen in 2024 follows a period of eight rate cuts earlier this year — a reversal of the easing cycle that began in June. Since January, similar loan profiles have seen monthly payments rise by roughly €38.
ECB signals pause after September rate hike
The European Central Bank raised its key interest rates by 25 basis points on 10 September, marking the second increase this year and ending the easing cycle that had begun in June 2024. The move was driven by persistent inflationary pressures, partly linked to the ongoing conflict in the Middle East.
The deposit facility rate now stands at 2.50%, with the main refinancing operations rate at 2.65%.
However, ECB President Christine Lagarde indicated on 29 September that rates are not expected to rise further at the upcoming 28–29 October meeting in Frankfurt, suggesting a pause rather than additional tightening.
Outlook for the coming months
Market projections point to moderate upward pressure on Euribor rates through the end of 2024, with forecasts suggesting the six-month rate could stabilize around 3.2% by December. The Banco de Portugal has revised its outlook, anticipating short-term interest rates in the euro area to rise to 2.4% in 2024 and 3.4% by 2027–2028, following a pattern of initial reductions followed by recent tightening.
Economists generally expect monetary policy to remain restrictive, with no rate cuts anticipated in the near term. For Portuguese borrowers, financial advisors suggest considering options such as renegotiating spreads, switching to fixed or mixed rates, or transferring credit to mitigate the impact of potential further increases.
The Euribor rates are calculated daily as the average of rates at which a panel of 21 eurozone banks indicate they are willing to lend to one another in the interbank market.
