Christine Lagarde, president of the European Central Bank, announced – during an interview with the Spanish publishing group Vocento – the strong probability of a new rate hike of 50 points at the next meeting on 16 March. If the decision were confirmed, it would be the sixth consecutive increase, the last in order of time was on February 2, again by 0.5 percentage points. The ECB’s restrictive monetary policy began last July and the effect on mortgages has already been severe. What could happen now?
Fixed rate mortgages
The scenario for those who have an existing loan contract varies according to the type of rate: fixed or variable, in fact, depends on the sum of the spread (a percentage decided by the bank) plus a market rate which is generally the Euribor for variable rate mortgages and the IRS for fixed rate mortgages. For the latter, the growth of the interest rate swap (IRS) does not create any worries because the rate, once fixed on the day the loan is stipulated, does not change and remains unchanged until it is extinguished. The problem exists for those who have yet to take out the fixed-rate mortgage now: compared to the beginning of 2022, in fact, the value of the IRS has tripled and finding interesting offers is becoming increasingly difficult.
Adjustable rate mortgages
The most immediate risk is certainly that of seeing rates on variable mortgages rise further. According to a report by Facile.it, the installment of an average variable-rate mortgage signed, hypothetically, at the beginning of 2022 could rise by almost 35 euros in the coming months compared to today. In just over a year, the borrower would find himself paying a heavier monthly installment of 197 euros, i.e. about 43% more than the initial one. But it could not end there: according to experts, the 3-month Euribor could grow further, reaching around 3.4% in June 2023. If the forecasts turn out to be correct, the installment of the borrower under examination would reach a good 711 euros, 255 euros more than the one signed in January 2022.
How to contain price increases
There are some solutions to avoid further increases in the mortgage payment. Those who have taken out a variable rate mortgage still have time to evaluate a subrogation and thus switch to a fixed rate, effectively blocking the value of the installment in the coming months. It is an operation that allows you to change everything about the mortgage, except of course for the capital residual, also transferring the debt to another bank. Otherwise, with the same bank, the customer can renegotiate the loan, moving from a variable rate to a fixed rate or to a mixed rate, protected installment or with a maximum ceiling. The bank is not obliged, but with the approval of the 2023 Budget (in force until next December 31st), renegotiation is possible for some customers without the bank’s ok but with the respect of certain conditions, which are the same for all . This alternative is called state renegotiation.