Mortgages, the ECB’s tightening strangles the home purchasing power of Italians

Mortgages the gap between fixed and variable is reduced

(Finance) – Italians’ purchasing power with mortgages continues to contract. It is the inevitable effect of the monetary tightening undertaken by the ECB on 27 July. Since then, Frankfurt has gradually raised the cost of borrowing. The increases recorded so far have reduced, from January 2022 to today, the capital obtainable as a mortgage by 27% with the same installment, with clear negative repercussions on the value of the home that aspiring borrowers can afford. To date, the cost of fixed-rate money represented by the 20-year IRS index has started to grow again in the light of the statements of the president of the ECB, Christine Lagarde, who confirmed her intention to fight inflation with all available means : in short, at all costs. It also confirmed its intention to raise the ECB rate by a further 50 basis points next week. This is the scenario outlined by the Observatorythe mortgage search and comparison engine managed by FairOne.

The new inflation estimates expect it to be around 6% in 2023, down sharply from 10% in 2022, but still well above the ECB’s 2% target. At the same time – reads the report – the inexorable increase in the cost of money at variable rates continues, represented by the 3-month Euribor, whose values ​​are closely linked to the monetary policy decisions of the ECB which is preparing to increase the cost of money to 3.50% already next week. Furthermore, analyzing the futures curve, the markets expect further increases in the cost of money which should exceed the 4% threshold by September 2023.

In this context of rising cost of money, the gap between fixed and floating rate remains extremely small, around 20 basis points generating two effects: the polarization of the demand for fixed-rate mortgages which is requested by 96% of applicants (up by 2 percentage points compared to February); the increase of subrogation request by all those borrowers who intend to switch to a fixed rate to limit the increase in their mortgage payments.

The increase in the cost of money from the beginning of 2022 to today saw mortgages rise by almost 3 percentage points and led to a sharp reduction in the capital that can be financed by borrowers, inexorably reducing the purchasing power of homes, especially of younger applicants, despite the offers and concessions in their favour. In this context, in March the weight of the demand for purchase mortgages fell below 50% and younger applicants such as under 36 saw their weight decrease by 4 percentage points compared to February, representing 42% of new buyers.

Surely potential borrowers are on the alert. Their options can be summarized in the Hamlet question: whether it is better to fall back on a fixed rate that is already much higher than in the past (3.5% on 30-year terms and around 4% for shorter terms) or risk hypothesis that the Euribor may stop as of 2024 (the forecasts are for Euribor at 3% at the end of 2024 and at 2.6% at the end of 2025). Certainly those who opt for the fixed rate – the Observatory points out – protect themselves from the eventuality of being overwhelmed by a second inflationary tsunami and that the ECB will have to raise rates dramatically. Those who bet on the variable hope that, if the ECB were to trigger continuous rate hikes, it could trigger a harsh recession with a drop in inflation and, consequently, rates.

March Changes – Banco BPM and Webank reduced spreads on fixed-rate mortgages from 10 to 15 basis points; Intesa Sanpaolo increased its fixed rates between 25 and 45 basis points; BNL raised fixed rates between 15 and 20 basis points; Banca Sella increased the fixed rates between 20 and 25 basis points.

Demand analysis on the Online Channel – At a national level, it is noted that the purpose of purchasing has fallen to 46% of the overall total of applications with the subrogation conquering as much as 50%. The landline definitely triumphs, reaching a decisive 96%. The under-36 age group excels at 38%.

(Photo: Gino Crescoli / Pixabay)