New rate hike. With a further increase in the installments of variable mortgages
After the Fed in the US, the European Central Bank has also carried out a new rate hike of 25 basis points of the cost of money. And therefore who has an average variable rate mortgage, looking at the simulations of Facile.itmay be faced with yet another increment, with an installment that will reach 742 euros, 63% more than at the beginning of last year.
According to July data of MutuiOnline.it, the difference between the average variable rate and the average fixed rate is over 100 basis points in favor of the fixed rate (3.73% against 4.74%). However, the Euribor rate does not always move in a mirror image of the ECB rate and, in fact, signs that bode well are starting to arrive from the market. In fact, in recent days the Euribor, the reference index for variable mortgages, is slowing down its rise and this could be a sign of a possible change of course in the near future. The peak, according to the Euribor Futures which represent market expectations, could arrive in December 2023but already from the beginning of the last quarter, borrowers could see rates stabilize.
This is how the installment evolves
To understand how the installments have grown in a year and a half and how they could vary again following the announced increase, Facile.it analyzed a variable-rate loan of 126,000 euros with a 25-year repayment plan signed in January 2022. The starting rate (TAN) for January 2022 was 0.67%, corresponding to a monthly installment of 456 euros. Following the various increases, nine, in the cost of money implemented by the European Central Bank to combat inflation, the rate on that mortgage rose considerably, exceeding 4.80% in July 2023.
With the further increase of 0.25%, the monthly installment of the loan under examination could even reach 742 euros, with an increase of 286 euros compared to the initial one (+63%). Looking at market expectations (Futures on Euribor) if, as mentioned, the 3-month Euribor reaches its peak in December 2023 reaching 3.96%. That would lead the rate of the average mortgage examined to exceed 5.20%, with an installment of approximately 752 euros, or over 295 euros more than that of January 2022, but between September and December the increase in the index should be minimal and, with the start of next year, the trend could finally reverse; looking at the quotations for June 2024, the rate of the average mortgage examined should drop to 5%.
The hypotheses on the table
Second Alessio Santarelli, general manager of the MutuiOnline group, after the announcement of the ABI measures to alleviate the weight of the rise in variable rates, the impact of the choices must be considered. “Extending the term of the mortgage comes at a significant cost to a borrower: by extending a 160,000 euro mortgage from 20 to 30 years, you pay 41,000 euros more in interest over the life of the loan, despite paying 206 euros less per month,” he explained.
“It is therefore a short-term relief, which we recommend only to those who find themselves in difficulty and cannot access the Gasparrini Fund, which allows holders of a mortgage up to 250 thousand euros to suspend the installment for a maximum period of 18 months. Furthermore, with this new rate increase, it becomes even more important to safeguard the subrogation, which is the best tool to support consumers in transferring the mortgage to another institution by changing its conditions completely free of charge,” he added.
Meanwhile, inflation remains high
The ECB has raised interest rates to combat the inflationary pressure resulting from the war between Russia and Ukraine. The problem is that it still remains high, at 5.5%, well above the 2% target which is the objective that Frankfurt sets itself.
Analysts say it will be interesting to see the ECB’s next move, given that the Eurozone’s economic prospects pose an increasingly challenging challenge. “Perhaps – they say – unlike what happened in the past, the president Christine Lagarde and central bank experts will try to keep their cards covered, in the hope that the macro data coming out in the next six weeks will provide an indication of the direction to follow ”.
Per Dave Chappell Manager di Columbia Threadneedle Investments wording changes to the latest monetary policy statement suggest that rates are at or nearing what the central bank deems “tight enough” to kick-start inflation towards the 2% medium-term target