Mortgages, rates start to fall: fixed rates cheaper, variable rates wait for the ECB

In recent months, banks have begun a gradual reduction in the rates they charge households, with the average fixed rate falling to 3.69 per cent in March. A reduction that has been less pronounced on variable-rate mortgages with the average stable above 4 per cent.

This was reported in a report by Analisi & ricerche of Fabi, the autonomous Italian banking federation. Mortgage rates have fallen to an average of 3.69 per cent, compared to average levels of over 5 per cent in 2023: a reduction that entails, in the case of a 25-year 200 thousand euro real estate loan, an overall saving of 54 thousand euro (-14.9 per cent). On the front of mortgages issued last year, the instalments of those at a fixed rate had in fact doubled, while for those at a variable rate the monthly 'repayment' had risen by 60-70% or even more. As for old mortgages, on the other hand, there was no difference for fixed-rate ones, while the instalments of variable-rate ones rose by up to 78 per cent. Rates on consumer credit fell to an average of 8.93 per cent, after peaks of over 14 per cent.

There are 6.8 million indebted households in Italy, i.e. about a quarter of the total. Of these, 3.5 million have a mortgage for the purchase of a house. During 2022 and 2023, interest rates on loans increased with the cost of money progressively rising to 4.5 per cent. For several months, the Fabi report indicates, 'banks, in anticipation of a return to a less restrictive monetary policy by the Eurotower, have been anticipating the expected reduction in rates'.

The total value of home purchase mortgages amounted to EUR 423.4 billion at the end of March 2024, up by about EUR 33 billion compared to the end of 2020 (+9%), but down by EUR 3 billion compared to the end of 2022 (-1%). Of the total of EUR 423.4 billion disbursed, about one third, i.e. EUR 144 billion, is at a floating rate and the remaining EUR 279 billion is at a fixed rate. Since July 2022, Fabi notes, new fixed-rate mortgages have gone from an average interest rate of about 1.8% even up to over 6% with monthly instalments that, therefore, on the basis of the banks' offers, had even more than doubled. In recent months, banks have begun a gradual reduction in the rates they charge households, with the average fixed rate falling to 3.69% in March. The reduction was less pronounced on variable-rate mortgages with the average stable above 4%. During 2023, new variable-rate mortgages had even risen above 6% from 0.6% at the end of 2021, today the average is 3.67%: this means that for a EUR 150,000 loan with a duration of 20 years, the monthly instalment is EUR 1,180, a good EUR 515 more (+77.4%) than it would have been two years ago, or EUR 665.

"After the time of the big rises and in anticipation of the rate cuts in the coming months, the banks have realised that the time has come to put a brake on the difficulties of families and businesses that are still paying the price of a restrictive monetary policy," stresses Fabi secretary general Lando Maria Sileoni, commenting on the Fabi study on the rates charged by banks to customers. For many, notes Sileoni, 'the unsustainability of rates has already lasted too long and, in this transitional phase, anticipating the ECB's moves will reduce the damage to customers and can only help to improve the quality of credit in the sector. While waiting for effective and lasting solutions from those who govern in Frankfurt, the priority is to give a strong signal to those who are in greater economic difficulty and to young people, and with the reduction in rates, the social function of the sector will also reappear - in some way". Sileoni emphasises that 'we are therefore in the transitional phase: while waiting for the first cut in the cost of money, which the ECB is expected to decide on in about ten days' time, banks are therefore improving the conditions on loans and mortgages to households'. Average interest rates, observes Sileoni, 'have already dropped significantly compared to the end of 2024, and this brings important advantages for all those people who want to buy a home'. In the next 18 to 24 months, Sileoni emphasises, 'the ECB is likely to drastically reduce the cost of money, hoping that inflation will remain at today's low levels, to reach around 2 per cent: that is the basically optimal level to which we have to get used'.