Portuguese Mortgage Payments to Dip Despite Euribor Rate Hike
The European Central Bank’s (ECB) recent signals that it may halt further interest rate cuts in 2025 have triggered an upward turn in Euribor rates, yet many Portuguese homeowners are expected to see their mortgage payments continue to fall in the near term. According to a market analysis reported by CNN, Euribor rates for 3, 6, and 12-month terms rose between July and August, a reversal not seen in almost two years, directly responding to the ECB's adjusted monetary policy outlook.
This development follows the latest ECB meeting in July, where President Christine Lagarde announced that the primary deposit rate would remain unchanged at 2%. The decision was reportedly based on encouraging inflation data, which has led financial markets to recalibrate expectations of further rate reductions this year. The subsequent rise in Euribor rates reflects this new sentiment, signaling a potential end to the era of progressively cheaper credit that has defined the market.
Despite the headline rate increases, the immediate impact on household budgets will be delayed for those with variable-rate mortgages due for revision. The calculation for new monthly payments compares the current Euribor rate not to the previous month's rate, but to the rate in effect at the time of the last contract revision, which is typically six or twelve months prior. Because Euribor rates were considerably higher in 2024, these upcoming revisions will still result in a net decrease for many borrowers.
For a typical housing loan contract of €200,000 over a 30-year term with a 1% spread, the effect is tangible. If the loan is indexed to the six-month Euribor, the monthly payment is projected to decrease by approximately €40. For contracts indexed to the twelve-month Euribor, the reduction is even more significant, estimated to be around €110. This is a direct consequence of comparing current rates to the peak levels seen in August of the previous year.
This period of relief, which began around the start of 2024, provides a temporary cushion for borrowers across Portugal, from Lisbon to the Algarve. However, financial experts caution that this trend is finite. Should the upward trajectory of Euribor rates be sustained over the coming months, the cycle of decreasing mortgage payments will inevitably conclude. Following this, the market is expected to enter a phase of stabilization, where payments will level off before potentially rising in future revision periods.
The current market dynamics present a complex picture for property owners and prospective buyers. While the immediate payment reductions offer a welcome financial reprieve, the medium-term forecast suggests a less favorable credit environment. The stabilization of interest rates at a new baseline will have significant implications for housing affordability and investment calculations. Industry observers are now closely watching the ECB's next moves and the corresponding reaction of the Euribor indices to forecast the future direction of Portugal's housing finance market. Stay informed on Lisbon property market developments at realestate-lisbon.com.
