The Trend of Mortgage Interest Rates in Europe: Analysis, Historical Comparison, and Future Outlook

Introduction

The evolution of mortgage interest rates in Europe, and particularly in Italy, serves as a crucial indicator of the state of the economy and monetary policy. Following a long period marked by rate hikes aimed at curbing inflation, 2024 signaled a turning point. The European Central Bank (ECB) recently initiated a phase of monetary easing by cutting benchmark interest rates by 25 basis points, leading to an immediate effect on mortgages—especially variable-rate ones.

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1. Macroeconomic Context and ECB Monetary Policy

The beginning of 2024 saw a slowdown in inflationary pressures, accompanied by signs of economic weakness within the Eurozone. In response, the ECB opted to gradually lower interest rates, reducing the deposit facility rate to 2.65% as of March 2025, down from its 3.40% peak in October 2024 (Confindustria Bergamo, 2025).

This decision was driven not only by moderating inflation but also by growing concern over a potential return to technical recession. As a result, the ECB adopted a more accommodative monetary stance, aiming to stimulate both investment and household consumption.

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2. Variable-Rate Mortgages: Returning to Attractiveness

The ECB’s rate cuts had an immediate impact on variable-rate mortgages, which are primarily indexed to the 3-month Euribor. After reaching values close to 4% in 2023, the Euribor began to fall:

• March 2025: 2.83%

• Forecast July 2025: 1.95%

• Projected low by March 2026: 1.71%
  (Mutuisupermarket.it, 2025)

Currently, the average nominal annual rate (TAN) for 20- to 30-year variable mortgages has dropped to 3.44%, down from 3.69% in early 2023. This marks the first time in over a year that rates have dipped below the 3.5% threshold, making variable mortgages more appealing than they had been recently.

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3. Fixed-Rate Mortgages: Stability and Flexibility

Fixed-rate mortgages are generally influenced by the Interest Rate Swap (IRS) parameter, which reflects long-term interest rate expectations. Despite the ECB’s easing measures, the IRS has shown increasing volatility. After climbing to 2.76% in early 2024, the 20-year IRS fell to 2.66% by April 2025 (Mutuisupermarket.it, 2025).

Currently, fixed-rate mortgages offer an APR (TAEG) between 2.35% and 4.09% for terms ranging from 20 to 30 years. These remain attractive for borrowers seeking payment stability.

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4. Historical Rate Comparison

To better understand the current scenario, a historical comparison is essential:

Source: Idealista.it (2024), MutuiOnline.it

This comparison highlights how, after a period of monetary tightening intended to counteract post-Covid and energy-related inflation, the system is now undergoing a rebalancing phase, with positive effects on credit markets.

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5. Forecasts for 2025–2026

Futures markets suggest that the Euribor will continue to decline, with projections as follows:

• Below 2% by July 2025

• Low of 1.71% by March 2026

• Remaining under 2% through May 2027

The ECB may implement up to three additional rate cuts by the end of 2025—two of which are expected before July. If these cuts are realized, they will solidify a favorable environment for new mortgages and refinancing, especially variable-rate products.

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6. Renegotiation and Switching (Surrogacy): Strategic Tools for Borrowers

In this environment, renegotiating mortgage terms or switching to a new lender (surrogacy) may present valuable opportunities to obtain better credit conditions. Some banks are already offering tailored packages for customers looking to:

• Convert from fixed to variable rates or vice versa

• Redefine loan duration or reduce the spread

While surrogacy was widely used in 2023, it experienced a slight decline in 2024 due to greater rate stability. Nevertheless, with the new downward trend, demand for refinancing may rise again in 2025.

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7. Broader Economic Implications

The interest rate cuts affect more than just the mortgage market:

• Household consumption: Lighter monthly payments increase disposable income.

• Real estate market: Improved access to credit facilitates home buying.

• Business investment: Lower capital costs stimulate business expansion and employment.

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8. Risks and Uncertainties

Despite the optimistic outlook, several risks remain:

• Geopolitical instability: Trade tensions between the U.S. and Europe, or crises in the Middle East, could reintroduce inflationary pressures.

• Technical recession: A sharp economic downturn could necessitate further ECB action but also increase credit risk.

• Bank behavior: Financial institutions may not fully pass on ECB rate cuts to consumers, limiting the intended monetary policy effects.

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Conclusions

The year 2024 marked a critical transition phase for mortgage rates, signaling a return from the peaks seen in 2023. Forecasts point to a progressive decline over the next two years, with positive effects on variable-rate mortgages and new opportunities for fixed-rate financing.

It is essential for families and financial operators to closely monitor market developments and consider refinancing or switching strategies to optimize long-term borrowing costs.

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Additional Update: Q1–Q2 2025

In the first quarter of 2025, the ECB implemented its first 25 basis-point rate cut, lowering the deposit rate from 2.90% to 2.65%. Market expectations suggest that two additional cuts may follow by July 2025, indicating a faster shift to a more accommodative policy stance than initially anticipated.

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Euribor (as of May 2025)

The 3-month Euribor has continued to fall from its 2023 highs:

• January 2025: 3.14%

• March 2025: 2.83%

• May 2025: 2.60% (market forecast based on futures trading)

According to Liffe exchange forecasts, the Euribor should reach 1.95% in July 2025 and 1.71% by March 2026, confirming a firm downward trend.

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IRS (Interest Rate Swap) – May 2025

The most recent IRS values indicate a mild decline:

• IRS 10-Year: 2.70%

• IRS 20-Year: 2.66%

• IRS 30-Year: 2.65%

Despite early 2024 volatility, the combination of ECB cuts and subdued inflation has returned IRS levels to more manageable figures.

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Mortgage Rates – May 2025

Variable-rate mortgages:

• Average TAN (20–30 years): 3.44%

• Down from 3.69% in January 2024

Fixed-rate mortgages:

• Average TAEG (20–30 years): Between 2.35% and 4.09%

• Still highly competitive due to stable IRS

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Outlook Through 2026

This trend aligns with a gradual monetary easing cycle, largely driven by persistent concerns over sluggish economic growth across the Eurozone.

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Luigi Ragone