Mortgages and spreads weigh on ECB moves awaiting maneuver and Pnrr

The spread between ten-year BTPs and the German Bund closed up at 180 points

The rise in interest rates weighs on mortgagesnot only the final adjustment to 4.5% but the entire sequence of ten consecutive interventions on the cost of money, and the decisions announced on the purchase of securities weigh on the spread, in particular on that of a high debt country like Italy. The ECB’s latest moves are objectively putting into difficulty those who had bet on the variable rate, and those who have to take out a new mortgage, and also risk fueling new tension on the financial markets. On both fronts, mortgages and spreads, today’s news is starting to outline the scenario for the coming months. Although much will depend on the government’s economic policy choices, starting from the maneuver and implementation of the Pnrr.

Mortgages, the fixed rate already cheaper than the variable one

With reference to the rates applied on mortgages for home purchases, the Abi reports that in the last 4 months the average rate on fixed rate mortgages has always been lower than that of variable rate mortgages. Not only that, the gap has been widening: in July, the rate on fixed rate mortgages was 4.04% compared to 4.59% on variable rate mortgages; in June 4.13% compared to 4.47%; in May 4.15% compared to 4.40%; in April 4.06% compared to 4.33%. Fixed rate mortgages subscribed in 2020 maintain an average rate of 1.31% and those subscribed in 2021 at 1.40%, despite the increases in ECB rates. This means that he was attracted to us, because he was poorly advised or by independent choice, by the short-term advantage of the variable rate and today finds himself paying the price for a choice that could have been weighted differently.

The spread rises, driven by fewer purchases by Frankfurt

The spread between BTPs and Bunds closed up at 180 points, up from 178 points at the start of the session. The yield on the Italian 10-year bond rises by 5 points to 4.5%. The main reason that pushes the differential with German bonds high is that from October the ECB will reduce the purchase of government bonds, increasing the interest on public debt. For Italy this could translate into a higher bill to pay of 20 billion per year. The trend, according to analysts’ forecast, should lead to a constant increase at least until the end of the year. Morgan Stanley says the spread will continue to widen until it crosses the 200 basis point threshold.

How much are the maneuver, the Pnrr and the ratification of the ESM worth

In this scenario, the choices of the government and the majority that supports it will play a significant role. The progress of the PNRR projects, the next financial maneuver and the ratification of the ESM are three factors that can mitigate, or on the contrary exasperate, the trend that has been triggered by monetary policy, committed to the fight against inflation. Convincing responses in terms of economic policy could neutralize part of the push to increase the spread, the internal quarrels and in the dialogue with the rest of Europe could on the contrary trigger a new speculative spiral. (By Fabio Insenga)