September Euribor Averages Rise Across All Terms, Affecting Mortgage Costs
The key Euribor interest rates, which anchor the majority of variable-rate mortgage contracts in Portugal, concluded the month of September with a notable upward trend in their monthly averages across all three main tenors. The announcement of the month-end figures confirms a rising cost of money in the interbank market, a development that directly influences the monthly payments for hundreds of thousands of homeowners and the borrowing capacity of prospective property buyers. On the final day of trading, the three-month and 12-month rates registered an increase, while the six-month rate experienced a slight dip.
A detailed breakdown of the price movements shows the 12-month Euribor rate, a widely used benchmark in Portuguese home loans, experienced the most significant climb. Its monthly average advanced by 0.058 points to settle at 2.172%. The six-month Euribor, which is the most prevalent index for mortgages in the country, saw its average rise by 0.018 points to 2.102%. The three-month Euribor had a more modest increase, with its average ticking up by 0.006 points to 2.027%. The daily rates on Tuesday were recorded at 2.193% for 12 months, 2.096% for six months, and 2.032% for three months.
Several factors are contributing to these rate changes, primarily expectations regarding future monetary policy from the European Central Bank (ECB) and broader macroeconomic conditions across the Eurozone. Although the ECB has held its main policy rates steady in its recent meetings, the interbank market, where Euribor rates are determined, is pricing in the possibility of a less accommodative stance in the medium term as the central bank continues to monitor inflation and economic growth data. The rates reflect the price at which a panel of 19 major Eurozone banks are willing to lend to each other.
Real estate agency reports and market observations indicate that the cost of financing is a primary concern for buyers. According to data from the Bank of Portugal, the impact of these shifts is substantial. The six-month Euribor governs 37.96% of all variable-rate loans for primary homes, making its movement a critical indicator for a large segment of the market. The 12-month rate affects 32.09% of these loans, and the three-month rate applies to the remaining 25.51%. Therefore, the September increases will be felt across the board as loans are repriced in the coming months.
The behavior of buyers and sellers is likely to be influenced by this trend. Higher borrowing costs can reduce the purchasing power of potential buyers, which may lead to a moderation in demand or a shift towards properties in lower price brackets. Sellers, in turn, may need to adjust their price expectations to align with the new financing reality. 'We are advising our clients to secure mortgage pre-approvals early in their property search,' noted a spokesperson for a leading Lisbon real estate firm. 'This helps them understand their budget in the current rate environment and move quickly when they find the right property.'
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The mortgage market itself is responding to these conditions. While banks remain competitive, they are also applying rigorous stress tests to loan applications to ensure borrowers can handle potential future rate hikes. The European Central Bank's decision on September 11th to maintain its key rates, following a cycle of eight cuts that started in June 2024, was widely anticipated. However, the forward guidance from the central bank remains cautious, leaving the door open for future adjustments. The next monetary policy meeting on October 29-30 will be closely watched by the market for any change in tone.
A comparison with neighboring markets shows that this is a Eurozone-wide phenomenon, as all member states are subject to the same monetary policy framework and interconnected financial markets. Property developers are also reacting to these trends, factoring higher financing costs into their project viability assessments. This could influence the pace and type of new construction projects brought to market in the coming year.
Local government and national policymakers are monitoring the situation, as housing affordability is a key social and economic issue. However, their ability to influence these market-driven rates is limited. For individuals and investors with transactions currently in progress, the market timing implications are significant. A locked-in mortgage rate can provide certainty, while those on variable rates must prepare for adjustments.
Based on current indicators, the expected trajectory for Euribor rates is one of continued modest increases or stabilization at these new, higher levels. The era of near-zero interest rates appears to be firmly in the past, and the market is adjusting to a new normal where the cost of capital is a more significant factor in investment decisions.
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