Short-Term Euribor Drops While 12-Month Uptick Splits Portuguese Mortgages

The cost of money between euro-zone banks is sending mixed signals again. While the most widely used short-term benchmarks have slipped in early December, the 12-month Euribor – the reference for many legacy mortgages in Portugal – has nudged to its highest level since April, rekindling questions about where monthly loan instalments are heading.

At a glance

• 3-month Euribor dipped to 2.029 % on 3 December, erasing part of November’s uptick.

• 6-month fixing followed the same path, easing to 2.113 %.

• 12-month tenor climbed to 2.251 %, a fresh eight-month high.

• Roughly 54 % of Portuguese home loans carry floating rates, making each move in the Euribor immediately relevant for household budgets.

December’s split personality

The opening trading days of the month offered a textbook lesson in how different corners of the money market can move in opposite directions:

• On 1 December, the 3-month rate was marked at 2.060 %; two sessions later it had lost 0.031 pp.• The 6-month series mirrored that slide, though more modestly, trimming 0.010 pp over the same stretch.• By contrast, the 12-month quote added 0.024 pp between 1 and 3 December, locking in its strongest reading since the spring.

That divergence leaves the preliminary average for December at 2.122 %, still below last year’s mean but signalling that the plateau in borrowing costs could last longer than many households hoped.

Why short rates fall while the 1-year climbs

Analysts point to a trio of forces shaping the curve:

Expectations of fresh ECB cuts – After eight reductions since mid-2024 and three consecutive pauses, traders are betting the European Central Bank will resume trimming its deposit rate in the first half of 2026, dragging the very short end lower.

Sticky medium-term inflation fears – Eurostat’s flash data still put price growth above the target, prompting lenders to demand a premium when locking up funds for 12 months.

Curve re-steepening – The unusual mix is producing what dealers call a bull-steepener: short maturities soften, longer ones edge higher, suggesting investors see a short-lived slowdown rather than a deep recession.

Impact on Portuguese mortgages

Portugal is among the European countries where floating-rate contracts remain dominant:

• 38.3 % of loans are indexed to the 6-month Euribor.

• 31.87 % track the 12-month rate.

• 25.33 % follow the 3-month benchmark.

Families whose contracts are revised this month face a rare situation: payments linked to 3- and 6-month fixings will rise again after almost a year of relief, whereas those indexed to 12 months still benefit from last winter’s lower base – an advantage likely to disappear by spring if the current trend sticks.

The average rate on new mortgages slipped to 2.85 % in October, the lowest since 2022, helped by renegotiations encouraged by the government’s parcerias de poupança. New contracts, however, remained broadly steady at 2.84 %, highlighting how banks are already pricing in a higher floor for the coming quarters.

Looking into 2026

Forecasts compiled by the Banco de Portugal and several commercial lenders broadly converge on a gentle descent:

• 3-month Euribor seen around 2 % by the end of 2026.

• 6-month stabilising between 2.0 % and 2.2 %.

• 12-month drifting toward 1.85 %–2.2 %, depending on inflation dynamics.

Even the most upbeat models expect the landing to be slow, meaning borrowers should prepare for another year with rates stuck near 3 % before any tangible easing reaches monthly instalments.

What households can do now

• Audit the spread: negotiate with your bank if your spread sits above the market average.• Consider partial amortisation: with deposit yields still below mortgage costs, plugging spare cash into principal can generate a risk-free return.• Lock in peace of mind: fixed-rate offers remain scarce in Portugal but hybrid products that freeze payments for 3-5 years are gaining ground.• Follow December’s ECB meeting on 17-18 December; any hint of future cuts could shift Euribor expectations overnight.

Bottom line

The money market’s latest twist delivers a bittersweet message: short-term relief may arrive for banks, not yet for homeowners. Unless the economy slows more sharply than anticipated, Portuguese families should brace for mortgage payments that hover near current levels well into 2026, even if the first rays of an eventual rate-cut cycle are already visible on the horizon.