Bank financing for home purchase: Six-month Euribor rate reached a positive value

The six-month Euribor rate returned this Monday, June 6, to a positive level, for the first time since November 2015, when set at 0.009%, 0.017 percentage points more than the previous Friday.

This is the most used index in Portugal for home loans. That is, consumers with variable rate credit will have to prepare for greater expenses when contracts are revised.

The direct consequence of the progression of this, and of the 3 and 12 months, is the gradual increase in credit installments, in an adverse context for families, considering the price increases of most goods and services.

According to data from the Bank of Portugal, variable rate contracts represented 93.3% of the number of contracts in the portfolio at the end of 2020. However, 41.6% of Portuguese families have loans with Euribor at 6 months. Regarding contracts with a 3 and 12 month index, they represented 32.1% and 24.5%, respectively, of the total universe of mortgage loans contracted at a variable rate, in Portugal.

Before the 6-month Euribor rate returned to positive levels, the 12-month index had already returned to green in April. On Monday, the 12-month Euribor rate also hit a new high. Within 12 months, the index advanced to 0.521%, plus 0.035 points, a new high since July 2014.

The next Euribor interest rate to rise above the waterline will be the three-month rate. In May, analysts pointed out that this return will take place during the month of August. The 3-month index, also on Monday, settled at -0.314%, 0.014 points more than in the previous session and a new high since June 2020.

The 3-month Euribor rate entered negative territory on April 21, 2015, the 6-month rate on November 6, 2015, and the 12-month rate on February 5, 2016. Six years later, the Portuguese face a scenario of increases in mortgage loan installments this year.

In terms of cause, there are several. Inflation being the ignition key and the war in Ukraine the main accelerator. Euribor, at all maturities, began to increase in February, after the European Central Bank (ECB) admitted that it could raise key interest rates in 2022, due to rising inflation in the eurozone.

The trend was reinforced with the start of Russia's invasion of Ukraine on 24 February.

The evolution of Euribor interest rates is directly related to increases or decreases in the key ECB interest rates (which are charged to banks to lend them money). The revision of this rate influences all credit agreements. Euribor is set by the average of the rates at which a group of 57 banks in the eurozone are willing to lend money to each other on the interbank market.

Source: Supercasa