Mortgage Payments Set to Rise as Middle East Conflict Pushes Euribor Higher
Portuguese homeowners with variable-rate mortgages are facing unwelcome news this Easter: monthly repayments are going up. The Euribor rate -- the benchmark used in the vast majority of Portuguese mortgage contracts -- has reversed its downward...
Portuguese homeowners with variable-rate mortgages are facing unwelcome news this Easter: monthly repayments are going up. The Euribor rate -- the benchmark used in the vast majority of Portuguese mortgage contracts -- has reversed its downward trend since the US-Israeli strikes on Iran in late February, and families whose loans are reviewed in April will be the first to feel the impact.
According to Nuno Rico, an economist at DECO PROteste, a typical loan of 150,000 euros over 30 years with a 1 percent spread will see monthly payments increase by approximately 15 euros under the six-month Euribor, and around 10 euros under the twelve-month rate. That may sound modest, but the twelve-month Euribor has jumped more than 20 percent in daily value terms since the conflict began -- and the trajectory is upward.
A Problem of Timing
The interest rate spike comes at an especially difficult moment for Portuguese borrowers. Housing loans reached a total of 112.4 billion euros at the end of February, according to Bank of Portugal data -- a year-on-year growth rate of 10.4 percent, the highest since February 2006. The government's public guarantee scheme for young buyers, launched early last year, has turbocharged lending. But it has also meant that newer borrowers are carrying significantly heavier debt loads.
"The most recent contracts are around 120 percent above the average for active contracts," Rico explained. "The average amount requested is more than double what is owed on existing loans." This means that for newer borrowers, even a modest rate increase translates into a much larger absolute jump in monthly costs.
Could the ECB Make Things Worse?
The European Central Bank has held its reference rate at 2 percent, but that could change. "If the war continues throughout April, I would venture that it's almost inevitable that the ECB may be forced to raise the key rate at the next meeting," Rico warned. An ECB rate hike would push Euribor further upward, compounding the pain for variable-rate mortgage holders across Portugal.
Before the Middle East conflict erupted, the ECB had been on a cautious easing path, and markets had priced in further rate cuts through 2026. That expectation has been shattered. Energy prices -- with Brent crude now above 110 dollars per barrel -- are feeding through into inflation expectations, making rate cuts politically and economically untenable.
What Borrowers Can Do
DECO PROteste recommends that borrowers act now rather than wait. Switching to a mixed-rate mortgage with a two-year fixed period can lock in current rates and provide a buffer against further volatility. Some banks are offering fixed-period rates close to the current Euribor average, making the switch cost-neutral in the short term while providing protection against upside risk.
For Portugal's large community of foreign residents, many of whom purchased property with variable-rate mortgages during the low-interest-rate era of 2021-2024, the message is the same: review your mortgage terms now, and talk to your bank about hedging options before the next review date.
The housing market itself remains robust -- prices continue to rise, and demand from both domestic and foreign buyers shows no sign of abating. But the cost of servicing that housing debt is shifting, and for families already stretched by rising energy and food costs, even a 15-euro monthly increase adds to a cumulative squeeze that shows no sign of easing.
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