Government Forecasts 3-Month Euribor to Fall to 2.0% in 2026
The Portuguese government has announced its projection for key interest rates in its State Budget for 2026 (OE2026) proposal, anticipating a decrease in the 3-month Euribor to 2.0% in the upcoming year. This forecast is a central element of the macroeconomic scenario underpinning the budget and signals an expectation of lower borrowing costs for variable-rate home loans. The announcement was made as the budget proposal was delivered to the national parliament.
The detailed breakdown of the forecast indicates a slight downward movement from the 2.1% rate estimated for 2025 to 2.0% in 2026. This projection is based on futures market data from late August 2025. In contrast, the government expects long-term interest rates, represented by 10-year euro area bonds, to continue an upward trend, rising from 3.1% in 2025 to 3.4% in 2026. This divergence suggests a complex interest rate environment in the near future. For those navigating this, our Investment and Strategy Guides can be helpful.
The primary factor contributing to this forecast is the continued downward trend of inflation. The government's report states that monetary policy in the eurozone is expected to be "relatively unchanged in 2026." It notes that while the US may continue a cycle of rate cuts, the European Central Bank's (BCE) period of significant policy accommodation is likely over, leading to a more stable, predictable rate environment.
Real estate agencies and mortgage brokers have reacted to the news with cautious optimism. The head of mortgages at a major Portuguese bank stated, "A projected fall in the Euribor, however slight, is positive news for the housing market. It improves affordability for new buyers and provides relief for existing mortgage holders with variable rates." This could influence buyer and seller behavior in the coming months. Our Market Insights page provides more context on these trends.
In response to the forecast, buyers may feel more confident in taking on variable-rate loans, while sellers might see it as a factor supporting continued buyer interest and stable property prices. The stability could prevent a sharp downturn in transaction volumes that might otherwise occur in a high-interest-rate climate.
The mortgage market itself is responding, with some banks already beginning to factor these long-term projections into their product offerings. While fixed-rate mortgages gained popularity during the recent period of rate hikes, a more stable and lower Euribor could shift consumer preference back towards variable-rate products, which have traditionally been more common in Portugal. Navigating these choices can be complex, and guidance from English-speaking real estate agents can be invaluable for international buyers.
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The government's forecast does not significantly alter the landscape when compared to neighboring markets like Spain, where similar Euribor trends are anticipated. The key differentiator for Portugal remains its specific market dynamics, including housing supply and foreign investment flows.
Property developers are likely to view this forecast as a stabilizing factor, providing more certainty for their project financing and sales projections. A stable cost of borrowing for consumers is essential for the absorption of new housing projects currently in the pipeline.
The local government of Lisbon has not issued a direct response to the national budget's interest rate forecast, as its focus remains on municipal-level issues like housing supply and urban planning. However, a more favorable borrowing environment supports the city's goal of increasing homeownership.
For those considering a property transaction, the implication is that waiting for significantly lower rates may not be a fruitful strategy, as the projected decrease is modest. The current indicators suggest a period of relative stability rather than a sharp drop in rates.
The expected trajectory for the Euribor, based on this government forecast, is a gentle decline to the 2.0% mark through 2026, with no further major movements anticipated unless macroeconomic conditions, particularly inflation, deviate significantly from the current path.
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