Facile.it: for variable ones, rate +52% in just 14 months
According to Christine Lagarde, on 16 March the ECB should proceed with a new increase in the cost of money which, for those with an average variable-rate mortgage, could translate into an increase of 35 euros on the loan installment. In just 14 months, therefore, the increase would reach around 237 euros, i.e. 52% more than the original installment. To analyze how installments have grown and how they could still increase following a new rate hike by the ECB (we are talking about 50 basis points), Facile.it examined a variable-rate loan of 126,000 euros in 25 years subscribed in January 2022.
The starting rate (Tan) used in the analysis is 0.67%, corresponding to a monthly installment of 456 euros. Starting from the second half of 2022, the European Central Bank decided to counter the growing inflation by increasing the cost of money several times, a choice that has already contributed to the already significant increase in the variable mortgage rate (which reached almost 4% in March 2023 ) increase which, as mentioned, does not seem destined to stop and indeed with the feared further increase in ECB rates of 0.50% could bring the monthly payment of the standard mortgage even to around 693 euros.
“To understand how the installments of borrowers will change in reality – explain the experts of Facile.it – we will have to wait to see how the Euribor will actually move, but those who are grappling with price increases have some important tools at their disposal today. You can choose to subrogate the loan, switching to a more convenient fixed or variable rate or, if you are eligible, renegotiate the loan with your bank by taking advantage of the new rules introduced by the Government. Since there is no absolute best solution over the other, the advice is to contact a consultant so as to identify the option that best suits your needs”.
However, the March increase may not be the last; looking at market expectations (Futures on the Euribor), the experts forecast that in June 2023 the 3-month Euribor could reach around 3.80%; if these forecasts were correct, the rate of the average loan examined would reach around 5.04% and the installment to a good 740 euros, i.e. more than 280 euros more than that of January 2022. To cope with the increase installments, and protect themselves from further future price increases, many borrowers are considering the possibility of changing banks; confirming this trend comes the data from Facile.it, which have highlighted how subrogation requests have returned to growth and, in the first two months of the year, represented almost 20% of the total loan applications, value doubled compared to the same period last year.
The increase in rates, however, also affects aspiring borrowers, who today have to deal with less favorable conditions than in the past. It is not surprising to see that, in recent months, those who have applied for financing for the purchase of their first home have aimed for smaller amounts than in the past. Again according to the analysis by Facile.it, in the first two months of 2023 the average request for first home mortgages fell to 136,935 euros, a value down by 7% compared to the same period of 2022.
“The gradual decline in the amounts requested – the experts of Facile.it continue – already underway since the second half of 2022, is closely linked to the increase in interest rates. In some cases it is the aspiring borrower who, in order not to give up when purchasing, chooses to focus on a smaller amount so as to lighten the monthly installment, in others it is the bank itself which, in order to preserve the installment/income ratio, is forced to reduce the request”.