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What to expect from Euribor mortgage base rates in 2023?

After a rollercoaster 2022 for interest rates worldwide, with the subsequent hike in mortgages, many present and future homeowners are wondering what’s in store this year. In this article, we summarise predictions from Spain’s big financial players, and add our own.

The background

12-month Euribor is the base rate used to calculate most Spanish mortgage interest rates, and is determined by interest rates in the Eurozone. Euribor began 2022 in negative territory before moving above zero in April for the first time since December 2015. Then, in the course of 2022, the European Central Bank (ECB), like its counterparts in the US and UK, decided to raise interest rates to temper rampant inflation. As a result, Euribor crept up through the year and, by December, had seen a total rise of 3.495%.

Many countries began 2023 with some light at the end of the tunnel in the battle against inflation. In countries such as Spain and the US, monthly rates were starting to fall, leaving the peak double-digit figures behind. In the Eurozone as a whole, inflation looks set to follow suit.

Milder winter weather has meant less pressure on gas supplies and commodity prices generally continue to fall. However, the war in Ukraine battles on and core inflation in many countries has yet to turn a corner. How will these factors affect ECB decision making?

At their December meeting, the ECB announced that “interest rates would still have to rise significantly at a steady pace to reach levels that were sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target”. That means higher euribor rates, and costs for Spanish mortgage borrowers.

ING forecast for Eurozone base rates

The ECB has said it will continue raising interest rates, but by how much? The Dutch-based bank, ING, in its recent article Any drop in euro interest rates in 2023 will be temporary, forecasts a 50bp rise in both February and March, with another increase (25bp) in May. The trajectory will, however, depend on how sluggish the Eurozone economy’s recovery rate is and interest rate cuts by the Federal Reserve. 

Prediction – ECB peak interest rate of 3.25% this year, with a drop to 2.5% in 2024.

Bankinter forecasts higher Euribor 

For its part, Spanish lender Bankinter predicts continued upticks this year for 12M Euribor, despite also forecasting a less restrictive policy from the ECB this year. The Spanish bank believes that Spain and the Eurozone are about to enter a period of slightly higher growth than the last ten years. 

Prediction – 12M Euribor at 4% by the end of 2023, and 2.2% in 2024. 

Funcas says rates will remain broadly similar 

The Spanish Foundation of Savings Banks, Funcas, believes that the current rate of around 2.8% will not experience higher upticks. Specifically, it expects the Euribor to reach 3.05% in March and 3.12% by June. 

Prediction – Euribor of 3.03% by the end of this year. 

Caixabank says rates will be slightly lower 

In contrast to other analysts, Caixabank has taken a more bullish stance on Euribor rates in 2023. The leading bank in Spain forecasts a rate of 2.73% this year, with the Euribor falling still further in 2024 to 2.51%. 

Prediction – 12M Euribor at 2.73% by the end of 2023 

Mortgage Direct says slow but steady rises 

At Mortgage Direct, we’re well aware that financial predictions are a challenge. With this in mind, we believe the Euribor will continue to rise during 2023, albeit more slowly than in 2022. 

We can see the ECB reducing interest rates slowly from early 2024, with the consequent knock-on effect for Euribor. However, we don’t believe rates will return to below 2% for the next couple of years, although we are optimistic about their stabilisation. 

Prediction – slightly higher Euribor mortgage rates this year, and starting to fall in 2024.

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