Mortgages, rates tripled in one year: house sales declining


By John

The high interest rate beats credit and reshapes the spending plans for the home of Italian families. This is what emerges from a research by Autonomous Italian Banking Federation (Fabi) on the increase in interest rates and the impact on mortgages. The surge in the cost of money, raised to 4.5% by the ECB, has tripled the rates charged by banks on mortgages granted to families. At the end of last December, the average interest applied to real estate loans had reached 4.40%, i.e. exactly triple compared to the 1.45% of January 2022, the lowest level in recent years.

The rates charged by banks for real estate financing operations, Fabi highlights, were 1.67% in January 2021 and remained essentially stable during that year, ending in a slight decline to 1.59% in December. Having fallen further to 1.45% in January 2022, interest on mortgages then rose during the first half of the year, with the market, as a matter of practice, anticipating the central bank's decisions.

Over the second half of 2022, rates went from 2.17% in June to 3.34% in December, with an additional 117 basis points. Further, important increases arrived during 2023: 3.68% in January and 4.02% in March, with the peak reached in November and rates reaching 4.61%, before falling back to 4.40% in December and 3.99% last January. It remains to be understood whether the “descent of the last two months is the beginning of a structural path and not an episodic fact”, explains Fabi.

The data of the last 12 months demonstrate, according to Fabi, «that the delicate balance between interest rates and inflation has put Italians' borrowing capacity to the test and dragged down investments in real estate». All this with negative effects, in general, on the real estate market and in particular on sales, which significantly decreased last year: for this reason, the share of Italians who go into debt to buy a home drops from 50% to 41%, with sales falling by almost 12%.

The reversal of the trend in the real estate market, observes the banking union, «could be favored if the European Central Bank, in the next meetings, decides to start a rate cut and a more expansionary phase, in general, for credit . Doubts, however, hover over the speed with which Italian families will respond to the incoming cuts and the induced, but slow, effect that they will have on the cost of those who borrow. For now, the data on loans and the pressure on the Italian real estate market are negative and are the consequence of the ECB's constant commitment to increasing the cost of money, in an unbridled attempt to curb inflation.”

The amount of mortgages, Fabi highlights, was at 392.3 billion in January 2021 and during that year increased at a rate of 1.5 billion per month, closing at 409.9 billion in December of the same year. Over the following 12 months, the pace of growth slowed slightly to 1.4 billion, with the total reaching 426.9 billion at year-end from 410.3 billion in January.

Trend reversal and slowdown came immediately with 2023: the first drop of around 600 million already in January (stock at 426.2 billion) and then a progressive, albeit slow, decrease up to 424.6 billion last December: the decline monthly average was 192 million for a total of 2.3 billion euros over 12 months (-0.54%). «The data, reworked on the basis of Bank of Italy statistics, not including any securitisations, therefore allow us to observe that the amount of real estate loans – the analysis observes – has systematically grown in correspondence with favorable rates, both from the from the point of view of monetary policy and with regards to customer interests, only to then decelerate significantly when the dynamics of the cost of money worsened”.