Post lockdown economy: a scenario on variable rate mortgages

The lockdown caused inevitable changes , some of which were quite critical with respect to the country's economic scenario. Economic activities as well as consumption choices have undergone even drastic changes which have occurred over the course of just a few months . Although the common feeling was that of an imminent economic collapse, the reality appears very different, especially from the point of view of investments in the brick and requests for credit or financing . Today we will see the results analyzed by the third economic bulletin of the Bank of Italy with a focus on variable rate mortgages .

The brick market

The first data on which we would like to focus our attention is that concerning the investment in construction which, overall, has seen a rather dizzying decline of almost eight percentage points. Suffice it to say that in the month of April, production fell by 50% compared to the previous month. Therefore, sales and house prices have drastically dropped until they almost stop between March and April, but this figure is consistent with government impositions on containment measures. Only the public works have continued the works and investments, which is why it is quite obvious to see data like these. Sales fell by 15.3% and, therefore, house prices rose. The recoveries on supply and prices resumed their “normal” trend starting from the month of May but overall the decline continued also in the second quarter. Why do we talk about brick? For the simple reason that the purchase and sale of a property passes in almost all cases through credit . And this affects the demand and supply of variable and fixed rate mortgages as we will see in the following paragraph.

Credit to households and bank policies

Lending to households contracted by almost three percentage points due to spending cuts due to the climate of uncertainty and the need to keep savings aside. The average rates of new loans since May fell by 1.3% in parallel with the increase in the cost of real estate which, instead, increased. Therefore, on the part of the banks, there was a slight dissolution of consumer credit offer policies with consequent reductions in the margins on mortgages intended for the purchase of homes. In addition, the second quarter was characterized by the same conditions, with slightly more elastic offer policies on variable rate mortgages .

The choice between variable and fixed rate mortgages

These data indicate a period of great uncertainty on investments which, it must be remembered, have not completely stopped and are starting up again. Uncertainty has led, on the one hand, to a reduction in offers from credit institutions and, on the other, to lower confidence on the part of consumers compared to variable rate mortgages. This occurred because the market has certainly influenced interbank spreads and indices that determine the final rate to be paid by those who take out the loan. Variable rate mortgages refer to the Euribor interbank index which is the mirror of the market, a sort of thermometer of economic health.

Its full name, Euro Interbank Offer Rate implies that this is the average rate at which financial transactions in Euro take place between large European banks. It is a reliable index, albeit subject to constant fluctuations. If the rates remained as they are photographed these days, the impact of the rate between variable and fixed rate mortgages would be minimal. For this reason, the banks are proposing both solutions while people are looking for greater "certainty" in the fixed rate, a situation determined by the current economic uncertainty . In order to understand what the impacts of the lockdown really were, it will be necessary to analyze this bulletin with the closing one of the last quarter of which the future scenario is still very uncertain.

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The article Post lockdown economy: a scenario on variable rate mortgages comes from .

This is a machine translation of a post published on Scenari Economici at the URL on Wed, 30 Sep 2020 16:15:53 +0000.