On the geopolitical chessboard, uncertainty paints future economic scenarios in dark colors, with clear consequences also on mortgages to buy a house with the inevitable rise in interest rates. The real danger is that it will become jointly more difficult and costly to borrow money. If an increase was expected in 2022, it was not the war scenario that led to fibrillation on the markets and an acceleration in price increases. Skyrocketing inflation, pushed even further upwards by the war between Russia and Ukraine, could push central banks to adopt restrictive policies to prevent the cost of living from becoming structural in order to decrease liquidity in circulation (less money in circulation means higher value and, consequently, lower inflation). A perspective that is making i fly fixed mortgage rates and which presumably will characterize credit markets in the long run.
Furthermore, an increase in rates makes government bond yields higher, which consequently will cost less; therefore the remuneration of the public debt will become more onerous. Bank deposit yields will also tend to rise: banks will reward citizens' savings more.
Home loans: Eurirs above 1%, Euribor still negative
Following the recent movement in interest rates, which led in the last month to an increase in the 20-year Eurirs indices (typically used for fixed-rate mortgages) of more than 40 basis points (from 0,85% to 1,27% in a few weeks), it can be said that the golden phase of rates at all-time lows is at the end of the line. However, there are less tensions on the adjustable rate mortgages: the three-month Euribor (the variable loan parameter) still remained in negative territory, with a small jump of around 10 points (from -0.56% to -0.46%). Those who want to save in the short term can opt for the floating rate solution which so far stands at almost 80 basis points less than the fixed one, but the situation could soon change.
Futures on 3-month Euribor discount the return of the index to positive territory as early as the end of 2022. From 2024, the same futures project the multiplier of variable rates at 1,3% until 2028. If on the one hand it is it is true that these futures have always seen increases in the Euribor which then did not occur, on the other hand the current conditions for seeing these increases are partly confirmed by the statements of the number one of the ECB, Christine Lagarde that on March 30th he stated that monetary policy will have to worry about the inflationary surge by postponing actions to support fiscal policies. It is precisely from his words that the interbank rates linked to mortgages have found an upward push since the Euribor reflect precisely the decisions on the ECB's rates. Everything, therefore, will depend on the evolution of medium-term inflation data.
If the European Central Bank were to decide to raise interest rates, the fixed-rate mortgages already stipulated would not be affected and would benefit from the agreements made between the contractors, the bank and the customer. Variable-rate mortgages, on the other hand, will be directly affected by the change.
Inflation and interest rates 2022
With inflation in March reaching a record (+7,5%) and inflation estimates over 5-10 years going from 1,86% to 2,26% in the Eurozone, anyone with a variable rate mortgage long-term could evaluate the option of a subrogation to fixed. Even if the installment is higher in the immediate term (also because subrogation mortgages are more expensive), in the long run the overall interest expense could be cheaper if the ECB were forced to raise rates several times to stem the pressure inflationary. And this would have a direct impact on the installments of new and variable-rate mortgages, while the fixed ones will maintain stability regardless of the events.
The demand for mortgages was driven last year by young profiles thanks to the incentives put in place by the government for the purchase of a property and which will also continue in 2022. But the increase in rates could risk blocking the concessions for the under 36 and their chances of getting home loans.
Those intending to buy a house must carefully evaluate the type of mortgage. If the situation is still stable for variable rates, today fixed-rate mortgages are already more expensive than they were a year ago, but still at low levels, but destined to grow. At the same time, those at variable rates are linked to inflation and the decisions of the ECB and could become less convenient over time.
