PROPERTY: How Italian mortgages are getting more expensive

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PROPERTY: How Italian mortgages are getting more expensive

Average mortgage repayments in Italy are going up, meaning that people either on a variable mortgage rate or applying for a mortgage now will be paying more than they were last year.

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But as mortgage rates were at a record low last summer, just how bad is the outlook really and what should homebuyers expect?

READ ALSO: The hidden costs of buying a home in Italy

Interest rates have been increasing for around six months, with the situation made worse by Russia’s invasion of Ukraine, pushing up the cost of goods and services.

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The European Central Bank last week announced further “significant” inflation hikes, set to further impact on the cost of living.

The ECB predicts inflation will reach 6.8 percent in 2022, before declining to 3.5 percent in 2023 and 2.1 percent in 2024. These are all higher figures than were forecast in March.

For Italian mortgages, this means a higher monthly outlay due to the knock-on effect of higher mortgage interest rates – although those already on fixed rates are protected from the currently volatile market.

New figures from Italian consumer rights association Codacons show what you can now expect to pay according to the ECB’s interest rate projections.

In the case of a 30-year variable-rate €200,000 mortgage in Rome, the total increase in repayments would be just over €16,000 in the event of a 0.50 percent increase in mortgage rates.

The monthly hike would come to just under an additional €50.

According to financial forecasts, if the increase were 0.25 percent, an instalment would go from €619 to €642, but if it were 0.50 percent – as is predicted for September – it would reach €665.

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Price comparison website Facile.it also looked at what the changes will mean for monthly repayments, predicting that the variable rate will increase to over 2 percent by the end of the year.

Taking a €120,000 loan to be repaid in 20 years, today’s average variable rate is 0.85 percent, with a monthly instalment of €544.

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According to predictions, the variable rate will rise to around 2.2 percent by the end of 2022, meaning a higher monthly instalment of around an extra €75.

By June 2023, the variable rate is projected to rise to 2.95 percent and the mortgage instalment to increase to €663, making that an extra €120 to pay each month.

Is Italy heading for a market slowdown?

The latest figures are making homebuyers nervous.

According to a survey published by Facile.it, almost 2 million people in Italy have stopped looking for a new property due to the increase in mortgage rates.

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The cost is likely to rise further following the ECB’s announcement, the report noted.

“In a period of rising rates such as the current one, choosing a mortgage becomes a more delicate operation,” stated a spokesperson.

READ ALSO: The most expensive places in Italy to buy a house in 2022

“There is no absolute right or wrong choice between fixed rate, variable rate or hybrid solutions, the decision has to be made according to the specifics of the would-be borrower: risk appetite, income, duration of financing, age, and so on. The help of an expert advisor therefore becomes more important than ever.”

After years of falling mortgage rates, researchers said fixed rates have already risen and an average mortgage fixed rate will rarely fall below 2.4 percent.

Those who choose a variable rate, on the other hand, are said to be able access lower loan repayments, which start at 0.65 percent – but, as noted, won’t stay at that level for long and are subject to market fluctuations.

Historically, it’s still a good time to get a mortgage

Although the news seems gloomy for those on variable mortgages or those applying for a mortgage now, the figures follow record low interest rates on mortgages last year.

Italian mortgage rates fell to “historic lows” last year, the Italian Banking Association (ABI) said, after a cut to interest rates by the ECB meant 

A drop in interest rates from the ECB in May last year saw mortgage interest rates in Italy fall to their lowest in a decade, with monthly repayments almost halving in that time.

It placed Italy as the European nation with the lowest fixed mortgage rate.

Even though mortgage repayments across the country this year aren’t as favourable as in 2021, it’s still a comparatively good time to take out a mortgage.

Meanwhile, the ECB has pledged to return inflation to 2 percent over the medium term, which may subsequently bring down mortgage rates in Italy too.

See more in The Local’s Italian property section.

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