Swedbank: Expectations for Euribor increase have fallen

TALLINN – While market expectations just last month were for the six-month Euribor to rise to 3.2 percent by the end of the year, sentiment has now shifted more favorably for home loan clients, with the current forecast placing Euribor at 2.9 percent by year-end.

However, according to Swedbank's chief economist Tõnu Mertsina, it should be noted that this expectation reflects the current situation and could change depending on developments in the Middle East and the future outlook for energy prices.

Euribor was officially introduced in 1999, the same year the euro was launched. The historical average for the six-month Euribor is around 1.8 percent. "Although the current 2.5 percent and the expected 2.9 percent by year-end seem significantly higher than the average, as we know from the recent past, this is nothing unprecedented," Mertsina explained.

History has shown periods when Euribor was very high, as well as a time when it was in negative territory. "Looking at the big picture in five-year intervals, the period with the highest average was 1999–2004. The average six-month Euribor during that time was approximately 3.5 percent. In contrast, the lowest period was from 2017 to 2022, when it was nearly –0.4 percent," Mertsina noted.

Therefore, today's level of Euribor, which has been in use for more than 27 years, is nothing extraordinary. The absolute peak of the six-month Euribor occurred in October 2008, when it exceeded 5.4 percent for eight days. The most recent high was in the autumn of 2023, when it remained around 4.1 percent for some time.

Swedbank's head of housing loans, Anne Pärgma, explained that although the current Euribor exceeds the historical average, it does not necessarily mean that buying a home should be postponed.

Based on an average home loan of 140,000 euros with a 30-year period and a 1.45 percent margin, the monthly payment with the current Euribor would be just over 660 euros. Under the same conditions, but using the historical average Euribor, the monthly payment would be about 610 euros. If calculations are based on the current forecast for Euribor, the monthly payment for such a loan could exceed 690 euros by the end of the year.

"This means that compared to the historical average for the six-month Euribor, the monthly payment on the same loan is currently about 50 euros more expensive. If we consider the forecast for Euribor by the end of the year, the monthly payment would be approximately 80 euros higher than the historical average. Over a year, this would amount to about 1,000 euros more," Pärgma said.

However, she noted that waiting could prove to be significantly more expensive. "If you consider that a year from now the same property might cost 5 percent more, while at the same time you're paying 700 euros a month in rent for a full year, the financial impact of waiting alone could reach 16,000 euros, without even considering potential changes in purchasing power and income," she emphasized.

Pärgma added that a home loan is generally taken out for several decades, during which time Euribor can move in different directions. If a person needs a home and all the prerequisites for buying one are in place, the decision should not be made based solely on Euribor.

Since the majority of home loans are linked to the six-month Euribor, the rate is adjusted in the contract twice a year. The exact date when Euribor changes for a specific contract can be found in the loan agreement.